Most business owners will work with their advisor on strategies to maximise their financial opportunities. This planning is often crucial but the same applies to reducing risk and ensuring financial protections are in place for you and your company.
Maximising the effectiveness of how you set up your protection policies might not only give you greater certainty about the future for you and your family but also, save you money in the meantime. Take life cover for instance….
Let your business pay for your life cover
You don’t need to pay your life cover from personal income you’ve already been taxed on. Moving the cover into the business would mean the premiums are paid from gross income and treated as a business expense. You won’t create any Benefit in Kind tax charge for yourself, and if a claim is made, the proceeds will automatically go into a trust, meaning they are protected from inheritance tax. Although a special type of policy is needed, it costs the same as a personal policy and we don’t even charge you a fee for arranging it.
If you have an existing policy, the savings can be significant. To show you just how much, here’s an example where the life cover currently costs £100 a month and runs over a 20-year period:
- As a basic rate tax payer, to provide £100 of net income to pay the insurance premium, your business will need to generate approximately £133.50 to also cover both corporation and dividend tax. This £133.50 would be the ‘true cost’ of the policy.
- If you were to move the life policy into the business, it would still cost £100 per month but now, this would be treated as an expense and you would save 19% in corporation tax (rising to 25% in 2023) and avoid dividend tax altogether. This means the current ‘true cost’ of the policy would be £81.00 instead.
- This is a £52.50 saving a month which is over half the cost of the policy premium. This equates to a saving of £630 a year in total which would add up to £12,600 over the 20-year term of the policy.
Conditions to meet
As with any financial product, there are conditions you’ll need to meet for the life cover policy. These include:
- It must be for a single person and only for life cover
- It only pays a benefit if you die while still working and before the age of 75
- If you are planning to use a trust to pay into, it should be in place from the outset
- It can only pay out to an individual (or charity)
- It shouldn’t have a surrender value
- Some providers may have limits on the cover value depending on your age
We can work with you to make sure you tick every box needed so you have complete peace of mind.
These policies can be adapted for different circumstances and we will help you make a plan that meets your own specific business and family needs. Policies like this are good examples of simple, but very effective, changes which we can make to your long-term plans – and there’s so much more we can help you with.