Relevant Life Plans: A Detailed Guide for Company Directors

For company directors who need personal life insurance, the question of whether to pay for it personally or through the company has a clear answer: pay through the company, using a relevant life plan (RLP). The tax efficiency of this arrangement is compelling — yet it remains one of the most under-utilised planning tools available to directors of small and medium businesses.

This guide provides a detailed explanation of how relevant life plans work, the trust structures involved, the comparison with registered group life insurance, and the specific considerations for directors with limited or no other life insurance.

What is a Relevant Life Plan?

A relevant life plan is an individual life assurance policy taken out by an employer on the life of an employee or director. On the death of the life assured, the benefit is paid to a discretionary trust, from which it is distributed to the deceased's family.

The critical features that make it valuable are:

1. The employer pays the premiums as a business expense
2. The premiums are potentially corporation tax deductible for the employer
3. The premium is not treated as a benefit in kind (P11D) for the employee
4. The death benefit is paid to a trust, so it does not form part of the deceased's estate for inheritance tax purposes

These four features together make the RLP dramatically more tax-efficient than a personal term life policy funded from post-tax personal income.

The Tax Arithmetic: Why This Matters

To illustrate the advantage, consider a director in a company paying 25% corporation tax (the main rate from April 2023 for companies with profits above £250,000) who wants £1,000,000 of life cover:

Option A: Personal life insurance paid personally

• The director draws salary or dividend to fund the premium
• If salary: income tax and NI on the drawing, then the premium
• If dividend: income tax on the dividend, then the premium
• A higher-rate taxpayer paying a £3,000 annual premium effectively needs to earn £5,000–£6,000 before tax to fund that premium

Option B: Relevant life plan paid by the company

• The company pays the £3,000 premium directly
• No P11D benefit-in-kind on the director
• The company claims a corporation tax deduction: effective cost to the company is £2,250 (at 25% CT rate)
• No additional personal tax liability

The same £1 million of cover costs roughly 40–50% less, in effective economic terms, when structured as an RLP versus a personal policy for a higher-rate taxpayer director.

Eligibility: Who Can Have a Relevant Life Plan?

An RLP can be taken out for an employee or director of a company. It cannot be taken out for someone who is not a genuine employee or director (e.g. a self-employed consultant with no employment relationship).

The key eligibility rules:

• The employer must be a UK-registered company or organisation
• The life assured must be a genuine employee or director (including non-executive directors)
• The cover must be pure death benefit only — RLPs cannot include critical illness, terminal illness benefit linked to a CIC policy, or investment elements (though terminal illness benefit as part of the life policy wording is generally acceptable)
• The benefit must be payable only on the death of the life assured, not on any other event

RLPs are NOT suitable for the very smallest businesses: a sole trader without a limited company structure cannot access an RLP (there is no employing company). Self-employed individuals need personal term assurance or whole-of-life policies.

Sum Insured: How Much Can Be Covered?

Insurers typically apply an upper limit on the sum assured relative to the director's remuneration. Common benchmarks are:

• 20–30 times total remuneration for younger directors (up to age 40)
• Reducing multiples as age increases, reaching 10–15 times for directors aged 55+
• Total remuneration includes salary, bonuses, and sometimes dividends from the company

For example, a director aged 45 with total remuneration of £200,000 might be able to obtain cover of £4–6 million — which would provide meaningful family protection at a very reasonable tax-effective cost.

This is markedly higher than what many directors actually arrange, often because they have not explored the full scope available.

The Trust Structure

One of the most important features of the RLP is that the benefit must be written in trust. This is not optional — it is required for the policy to qualify as a relevant life arrangement under HMRC guidance.

The trust is typically a discretionary trust, with the discretionary beneficiaries being the employee's family members and dependants. The employer is the policyholder and trustee (commonly with independent trustees); the employee's family are the beneficiaries.

On the death of the life assured:

1. The insurer pays the death benefit to the trust
2. The trustees exercise their discretion to distribute to the beneficiaries (typically the spouse/civil partner and children)
3. Because the money passes to the trust rather than to the deceased's estate, it is outside the estate for IHT purposes
4. The benefit is typically paid much more quickly than if it had to go through probate, because it does not form part of the estate

The IHT advantage is significant for HNW directors whose estate is already approaching or exceeds the nil-rate band. Life insurance written in trust, by passing outside the estate, avoids 40% IHT on the death benefit — which can double the effective value of the cover to the family.

Comparison with Registered Group Life Insurance

Registered group life insurance (also called group death-in-service) is the more commonly known employer-funded life benefit. How does it compare with an RLP?

Feature	Relevant Life Plan	Registered Group Life
Employer pays premiums	Yes	Yes
Corporation tax deductible	Yes	Yes
Benefit-in-kind on employee	No	No
Minimum employee numbers	1 (can cover individual)	Typically 5+ (some insurers 3+)
Lump sum allowance (formerly LTA)	Does NOT count	DOES count
IHT exposure	Trust avoids IHT	Trust avoids IHT
Flexibility	Individual policy, portable	Scheme arrangement

The key distinction for HNW directors is the lump sum allowance point. Under registered group life insurance, the death-in-service benefit is tested against the lump sum and death benefit allowance (LSDBA) — £1,073,100 as of 2026 following the abolition of the overall Lifetime Allowance on 6 April 2024. Lump sums above this threshold are taxed on the recipient at their marginal rate of income tax (the former 55% lifetime allowance charge no longer applies).

A director who has accumulated significant pension funds may already be close to or above the LSDBA. A registered group life benefit on top would push the estate further into the taxable zone.

An RLP, by contrast, is a non-registered (excepted) arrangement under section 393B ITEPA 2003 — the death benefit does not count against the LSDBA at all. For directors with substantial pension assets, this is a material advantage.

Case Study: Director Without Other Life Cover

Consider James, aged 48, sole director and 100% shareholder of a consulting business turning over £500,000 per year. James takes remuneration of £200,000 (salary plus dividends). He has a pension pot of £900,000 and a residential mortgage of £750,000. He has no existing life insurance.

If James dies:

• His estate (home equity, pension, business value) would pass to his spouse
• If the pension is not in drawdown, the death benefit passes to the spouse pension-free (under current rules)
• But there is a £750,000 mortgage that needs repaying
• And the business — as a sole-director company — may have limited value in James's absence

An RLP providing £1,500,000 (covering the mortgage plus providing working capital) at a sum around 7.5 times remuneration would:

• Cost the company approximately £3,000–£4,000 per year in premiums (depending on health and exact policy terms)
• Be corporation tax deductible — effective cost approximately £2,250–£3,000 per year
• Pay the death benefit outside James's estate (no IHT on the £1.5m)
• Not count against the LSDBA

James's spouse receives £1.5 million, promptly, free of IHT. The alternative — James arranging the same policy personally, paying from post-tax income — would cost significantly more in effective terms and would be subject to IHT unless written in a separate personal trust.

Premium Deductibility: The HMRC Position

HMRC's guidance on the income tax treatment of RLP premiums is found in the Employment Income Manual (EIM15045 and related guidance), with the corporation tax deductibility position addressed in the Business Income Manual. The key principle is that premiums are deductible where:

• The policy is a qualifying relevant life policy
• The employer is the policyholder
• The benefit is paid to a discretionary trust for the employee's family
• The policy has no investment or cash value

HMRC accepts that RLP premiums are an allowable business expense under the principles in s74 Income Tax (Trading and Other Income) Act 2005 (for unincorporated businesses, though less common) and s54 Corporation Tax Act 2009 (for companies).

Practical Points: Setting Up an RLP

1. Work with a specialist adviser — RLPs involve an interaction between insurance, trust law, and tax that requires specialist knowledge
2. Use the insurer's master trust — most RLP insurers maintain a master discretionary trust deed that simplifies setup; the employer does not need to create a standalone trust
3. Expression of wishes — the director should complete an expression of wishes document indicating the preferred beneficiaries; this is not legally binding on trustees but is persuasive
4. Review remuneration — the sum insured is linked to remuneration; if remuneration changes significantly, the sum insured may need to be reviewed
5. Portability — if the director leaves the company, the policy can typically be converted to a personal policy without further medical underwriting (subject to insurer terms), making it more portable than a group scheme

The tax and trust aspects of relevant life plans are complex and subject to HMRC interpretation and legislation that may change. The information in this guide is educational and does not constitute tax or financial advice. A qualified financial adviser and, for trust matters, a solicitor should be consulted before establishing a relevant life plan.

How Global Investments Can Help

Relevant life plans represent one of the most straightforward and cost-effective planning opportunities available to company directors. The combination of corporation tax deductibility, no benefit-in-kind, and IHT-free benefit payment through trust makes them consistently superior to personally funded term assurance for the director who has a limited company.

Our advisers work regularly with business owners and directors to structure protection insurance in the most tax-efficient way. If you are a director with life insurance you pay personally, or with no life insurance at all, an RLP review is a logical starting point. Contact us to discuss your situation.