Dental and Medical Financial Services explains how you could save 52% in tax relief.
Did you know that you could claim back tax relief on a specific life insurance policy called Relevant Life cover?
Relevant Life cover provides you with the same benefits as a regular life insurance policy:
- A lump-sum payout to the beneficiary in the event of the death (critical illness, disability and personal accidents are not covered) of the policy holder
- The lump-sum is free from inheritance tax and income tax
- Policies can be level-term or reducing term, relating to how much you pay for the monthly premium.
The main difference with Relevant Life cover is that it can be paid for by your limited company. As it is treated as a business expense, this opens up tax saving opportunities both for the company and you as an individual.
Tax benefits of Relevant Life cover
Firstly, Relevant Life cover is paid for by your company, so is therefore allowable for corporation tax relief at 20%.
Secondly, regular life insurance is paid for from your personal finances, which means that you, generally, need to use taxable income to fund the premiums. With Relevant Life cover, fewer dividends are required to cover your personal expenses, so this also becomes a tax benefit.
Also, with a company Relevant Life policy, national insurance doesn’t apply, and the premiums are not taxed as a P11D benefit-in-kind either.
Finally, because Relevant Life insurance operates through a trust facility, payouts to the beneficiary are, not only typically prompt, they are also exempt from inheritance tax.
Some directors saved 52% from switching
The level of savings you can make depends on the rate of tax that you pay.
Higher rate taxpayers are able to save up to 52% in tax relief. This is based on switching from a regular life insurance cover, which is paid from dividends.
Over 25 years, with a £50 per month policy, savings of close to £8,000 are possible.
Basic rate taxpayers tax benefits could save up to 36%.
So what’s the catch?
There really is no catch. Relevant Life cover has significant tax benefits for dentists that trade using a limited company.
Policies do cease at age 75, but they are aimed to cover you for your working life, and a little more.
In addition, there is a limit regarding the amount you can insure yourself for. This is capped at 15 times your annual remuneration, which includes salary, dividends and P11D benefits. However, for dentists this is usually considered more than sufficient.
- 20% corporation tax relief
- Tax savings at basic, higher or top rate tax from reduced dividends
- Benefits are free from inheritance tax
- Premiums are not subject to national insurance
- Premiums are not classed as a P11D expense.
To switch, speak to a specialist financial adviser that can prepare a bespoke quote for you and see how much you could save. Visit www.dentalandmedical.com.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.