AUGUST 2016 - Death in Service Benefit Schemes and their Alternatives
While it may be a somber thought, we all have a duty to ensure appropriate cover is in place for our families in the event of premature death. Many of us – particularly those working for larger companies – are fortunate to have access to Death in Service benefits provided by our employers, but sadly these schemes are not available to all.
The majority of Death in Service schemes have a minimum requirement regarding members (often five members), which means that they are generally unavailable to smaller businesses and to those who own and run their own company. This means that these individuals often have insufficient life cover to care for their families.
An excellent alternative model for these parties is a Relevant Life Plan, which is basically a tax-efficient Death in Service Scheme provided by an employer to any individual within a company who is paid under PAYE.
Through this scheme, the company pays the policy premiums, but employers have no liability to National Insurance on these costs. The company can also claim Corporation Tax relief against the any payments paid, which additionally do not count towards the individual’s pension Annual Allowance or the Lifetime Allowance calculation. Furthermore, in the event of a claim, all proceeds can be paid out tax-free.
If you are a small business owner employing under five people, or if you are the Director of your own company, this could be a great option for you. It could also be something worth pursuing if you are a higher-earning employee who wishes to arrange a lump sum Death in Service benefit, perhaps in relation to your total remuneration rather than simply your salary, without being subject to the Lifetime Allowance Tax Charge, or if you are a business owner looking for a tax-efficient way to provide family protection.
At French Duncan, we have a range of Independent Financial Advisers available to help you make the right choice for your business. We are able to look across the whole market to make sure we select a company with policy benefits to suit your needs at a competitive price.
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