Is relevant life insurance a business expense?
Yes — in most cases relevant life insurance premiums can be treated as a legitimate business expense.
If a policy is structured correctly and meets HMRC’s relevant life rules, the premiums are usually paid by the company and may qualify for corporation tax relief.
The policy provides life cover for a director or employee, while the cost is borne by the business rather than the individual.
When the policy is set up correctly and meets HMRC’s conditions for relevant life policies, the company can normally claim tax relief on the premiums.
The cover is arranged through the company but provides protection for the insured employee or director. For an overview of the policy structure see what is relevant life insurance?.
Relevant life insurance is designed to provide life cover through a limited company in a tax-efficient way.
If the insured person dies during the policy term, the insurer pays a lump sum to the trustees of a discretionary trust, who then distribute the proceeds to the beneficiaries.
This structure is widely used by owner-managed businesses and limited company directors. Learn more about trusts and relevant life policies.
Claiming premiums as a company expense
Premiums are normally paid directly from the company’s bank account.
If the policy is provided wholly and exclusively for the purposes of the trade, the cost may qualify as a deductible expense against corporation tax under section 54 of the Corporation Tax Act 2009.
See the broader tax benefits of relevant life insurance for a full explanation of how the relief works.
To qualify for tax relief, the policy generally needs to be:
- for the benefit of an employee or working director;
- used solely to provide death-in-service style life cover;
- structured in line with HMRC guidance on relevant life policies.
HMRC’s Business Income Manual (BIM45525) explains that life assurance premiums may be deductible if they are incurred for business purposes rather than providing a personal benefit.
Your accountant or adviser should confirm that the policy satisfies the “wholly and exclusively” test.
You can also review the 12 key facts guide for further technical detail.
Benefit-in-kind treatment
One of the main advantages of relevant life insurance is that it is not normally treated as a benefit-in-kind.
The company pays the premiums but the employee or director is not usually taxed personally on the benefit.
This makes relevant life cover significantly more tax-efficient than paying for a personal life policy from post-tax income.
See relevant life vs personal life insurance for a detailed comparison.
Provided the policy qualifies under HMRC’s relevant life rules and is written under a discretionary trust, the premiums should not appear on a P11D form and will not normally attract National Insurance contributions.
For further clarification, see our FAQs.
When tax relief may be denied
Tax relief could be refused if the policy is seen as primarily benefiting the business owner in a personal capacity rather than serving a genuine business purpose.
For example, HMRC may challenge a policy if it appears to be structured mainly to extract company profits tax-efficiently rather than to provide legitimate employee protection.
This risk is one reason relevant life policies are normally arranged through experienced advisers.
You can read more about the process in our guide: how to set up relevant life insurance.
Inheritance tax and trust benefits
Because the policy is written into a discretionary trust, the insurance payout will normally fall outside the insured person’s estate for inheritance tax purposes.
This means the benefit can be distributed quickly to beneficiaries and will usually not be subject to inheritance tax.
See our detailed guide to relevant life and inheritance tax for further explanation.
The trust structure also provides flexibility if family circumstances change during the policy term.
For a full explanation see trusts and relevant life policies.
Professional advice
Tax treatment depends on your company’s circumstances and HMRC’s current rules. Before claiming relief, confirm the position with your accountant or financial adviser.
Our partner Broadbench specialises in arranging compliant relevant life policies for limited company directors and can help ensure the policy structure meets HMRC requirements.
To learn more about the structure of these policies, read our guides on the tax benefits of relevant life insurance, trust arrangements, and the frequently asked questions.