Financial
Extra family protection – with tax relief, too
While the NHS provides some protection for families through the NHS superannuation scheme, there are limits on the cover available
W
ith the constantly rising cost of living, there is invariably a shortfall if the bread- winner’s income
ceases – and those left behind struggle financially. Most households are sadly underinsured and, usually, the first time this is recognised is when someone dies. Having had to deal with many death
claims, we have never had someone who died with ‘too much life assurance’, nor a widow who returned a cheque because the amount was excessive.
Life cover with tax relief for directors and employees There are now many dental practices which operate with limited company status. This gives them an opportunity to provide additional life cover, which can be paid for from pre-tax profits. It can apply to the owners, their spouses (if employed) and all their staff. (For the self-employed, sole traders and partnerships, other oppor- tunities may be available.) This can be done using Revenue-
approved trust deeds. These allow fixed-term life assurance to be a deduct- ible expense for the business, with no tax or National Insurance implications nor benefit in kind charges for the individual, and where the proceeds are paid on death to the deceased’s family as a tax-free lump sum. This is effectively ‘group life cover’ where the ‘group’ can be as small as one individual and where no prior registration or approval is required by the Revenue to set up the scheme. A number of leading companies now
offer this cover and we are able to consider them all, not only from a premium perspec- tive, but also with the knowledge of the providers’ underwriting criteria, admin- istrative efficiency and financial strength.
Conditions With the tax benefits of this type of protec- tion there are specific conditions which must be applied and adhered to: • The company/employer pays the
paying the premium, whereby the tax relief would again apply.
• Premiums do not count towards your Annual Allowance for pension purposes (this is especially relevant for practi- tioners in lieu of changes to accrual rates for pensions and reduction in Annual Allowance for pension purposes).
• The policy proceeds are not included in Lifetime Allowance for pension purposes (again this is especially rele- vant following the reduction in Lifetime Allowance announced).
premium as a deductible expense for corporation tax (or income tax) purposes.
• Premiums are not treated as a benefit in kind for the individual and there are no tax implications – no National Insurance contributions are payable.
• Claim proceeds are paid as a tax-free lump sum, under trust to the individual’s family or nominated beneficiary.
• Cover is restricted to 15 x ‘earnings’ which can include salary, bonus, divi- dends and existing benefits in kind.
• ‘Earnings’ can be from a group of associ- ated companies.
• There is no need to reduce cover if earn- ings drop as this need only be declared at outset.
• It provides for life assurance only (no other benefits are permitted).
• The maximum term is to age 75, whereby the plan must cease.
• If the employee leaves employment, he/she can continue to pay premiums personally, however no tax relief is permitted.
• If the employee gains new employment, the plan can then be assigned to the new employer, which could commence
Many owners/directors of a limited company view this as an ideal opportunity to have the costs of additional life cover effectively subsidised by the Revenue. For your employed staff, it is essentially a way to provide them with an employee benefit in a very tax-efficient manner. The employee could, of course, be your spouse, partner or other family member who works within the practice. As life assurance has become much
more competitive in recent years, it may even be possible to examine existing cover and premiums to determine if any net benefit could be achieved by reassessing these plans for the tax benefits through a thorough research process and the ability to compare all aspects first. Your age, together with health will, however, be an important consideration when conducting such an exercise. This article provides technical and
generic guidance only, and should not be interpreted as a personal recommendation. It represents our interpretation of current and proposed legislation as at the date of the publication. This may change in the future. Martin Aitken Financial Services Limited is authorised and regulated by the Financial Conduct Authority.
ABOUT THE AUTHOR
Stephen M Harrower is a senior financial services manager with Martin Aitken Financial Services Ltd and can be contacted on
smh@maco.co.uk or 0141 272 0000.
Scottish Dental magazine 47
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88