NOT financial advice - seek advice from a professional for your specific situation

    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Relevant Life Policy + Group Income Protection (PHI) (RLP / GIP)

    **Relevant Life Policy (RLP)** is the PREFERRED route for sole-director Ltd Cos seeking LIFE INSURANCE cover via the company. Statute: ITEPA 2003 s.307 (BIK exemption). Mechanics: company pays premiums as CT-DEDUCTIBLE expense; **NO BIK** (not reportable on P11D); **NO employer or employee NI**; policy written into DISCRETIONARY TRUST from inception → payouts go to beneficiaries OUTSIDE the deceased's estate (typically IHT-free). Pure life insurance only (no critical illness, no income protection). Maximum cover typically 15-30× annual income (salary + dividends). Must be UK business + UK resident employee up to age 75. **Death-in-Service (Group Life Assurance)** requires minimum 2 employees for group scheme, typically not available for sole-director Ltd Cos (use RLP instead). **Group Income Protection (GIP) / Permanent Health Insurance (PHI)**: employer premiums CT-deductible; NO BIK on premiums; NO employer NI; **payouts during claim taxed as EMPLOYMENT INCOME via PAYE** (the trade-off, relief going in, taxed coming out). **CRITICAL HMRC reversal late 2022, OpRA + GIP**: salary-sacrifice GIP creates DOUBLE-TAX RISK from 1 January 2024 (transitional protection expired 31 December 2023). GIP should be provided as straight employer-funded benefit, NOT via salary sacrifice. **Extraction savings vs personal life insurance**: ~49% saving for higher-rate-band directors over policy lifetime.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    What this relief is, in plain English

    Life + sickness cover provided via the Ltd Co is one of the more nuanced extraction territories. Three structures: **RLP** (life cover, IHT-free trust payout, no BIK, no NI, most efficient for sole-director Ltd Cos); **Death-in-Service** (group life assurance, requires 2+ employees, for larger companies); **GIP / PHI** (income protection during sickness, premium CT-deductible + no BIK BUT payouts taxed as PAYE income, trade-off relief). RLP economics: company pays £200/month premium (CT-deductible → £50 CT relief; no BIK or NI). Director receives £1m+ of life cover with payout to family IHT-free via discretionary trust. Personal equivalent: ~£392/month gross salary needed (after IT + NI) to fund the same £200 premium personally. Effective saving: ~49% per premium pound paid. Over 25-year policy life: £16,000+ savings vs personal alternative. GIP / PHI economics: more nuanced. Premium deductible + no BIK during health (no payouts) → fine. During a claim: sickness benefit taxed as PAYE income → less attractive than tax-free personal PHI claim payouts. The OpRA reversal from late 2022 + 1 January 2024 transitional expiry means salary-sacrifice GIP creates DOUBLE TAX RISK. Best practice from 2024+: provide GIP as straight employer benefit without salary sacrifice; review existing salary-sacrifice arrangements + restructure. For owner-director planning: RLP is the easy-win life cover route, substantial savings + clean tax treatment + flexible structure. GIP / PHI is more nuanced, appropriate as employer benefit but requires careful structuring + understanding of the payout-taxation trade-off.

    How it works

    Relevant Life Policy mechanics

    Company applies for individually-underwritten RLP on director-employee's life. Premiums paid by company → CT-deductible (~25% relief at main rate). Policy written into discretionary trust from inception. Cover limit: typically 15-30× annual income, ends at age 75. NO BIK on premium. NO employer or employee NI. On death: trust pays out to beneficiaries IHT-FREE (outside the estate). Pure life cover only (no CI, no income protection).

    Group Income Protection / PHI mechanics

    Company arranges GIP / PHI cover for director-employee or staff group. Premiums paid by company → CT-deductible. NO BIK on premium. NO employer NI on premium. During a SICKNESS CLAIM: payouts taxed as EMPLOYMENT INCOME via PAYE (with employer NI applied). Cover typically replaces 50-75% of income during sickness up to defined limits + duration.

    OpRA + salary-sacrifice GIP, double-tax risk post-January 2024

    Late 2022 HMRC reversed its earlier guidance allowing salary-sacrifice GIP. Transitional protection expired 31 December 2023. From 1 January 2024 onwards: salary-sacrifice GIP creates DOUBLE-TAX RISK, employee taxed on the benefit AND on any subsequent payout. Best practice: provide GIP as straight employer-funded benefit (no salary sacrifice). Review existing 2018-2023 salary-sacrifice GIP arrangements + restructure to non-sacrifice basis where possible.

    Death-in-Service vs RLP, group vs individual

    **Death-in-Service (Group Life Assurance)**: minimum 2 employees, group-underwritten, typically cheaper per-life. **RLP**: individually-underwritten for single director-employee, slightly higher per-life cost but accessible for sole-director companies. Both structurally tax-favourable (premium CT-deductible, no BIK, trust payout IHT-free). RLP for owner-managed Ltd Cos with 1-3 directors; group Death-in-Service for larger workforces.

    Who qualifies

    Interactions with other reliefs

    Workplace Pension Employer

    Both efficient employer-funded benefits for directors. RLP + pension cover different needs (life cover + retirement). Stack independently, both CT-deductible + no NI.

    Pension Lifetime Allowance (abolished April 2024)

    Pre-April 2024: Death-in-Service benefits counted against LTA. Since LTA abolition: no longer a constraint, RLP + Death-in-Service payouts work without pension-LTA interaction. LSDBA may apply to death-benefit lump sums from pension scheme (separate mechanic).

    IHT Business Relief (April 2026 £2.5m cap)

    RLP payouts go to beneficiaries via trust, outside the estate + IHT-free. Combined with Business Relief on qualifying assets (subject to £2.5m cap from April 2026), comprehensive estate planning for substantial Ltd Co owner-directors.

    Mobile Phone Exemption + Trivial Benefits + AMAP

    All are common employee-benefit reliefs stacked for owner-director efficient extraction. RLP + GIP add risk-management layer (life + sickness cover) alongside the standard benefits package.

    Common mistakes + audit triggers

    Worked example

    Saul, Glasgow - Sole-director Ltd Co consultancy, age 42, considering RLP via company vs personal life insurance (2025/26 + 25-year analysis)

    Saul's Glasgow consultancy Ltd Co. Saul earns £75,000 (salary + dividends combined). Wife + 2 young children depending on him. Considering 25× income = £1,875,000 life cover. RLP premium quoted £180/month (Saul age 42, healthy, 25-year term). Personal life insurance alternative: same cover at slightly lower £165/month from personal funds.

    Calculation: **RLP via Ltd Co:** - Annual premium: £180 × 12 = £2,160. - CT relief at 25%: £540/year. - Net company cost: £2,160 - £540 = £1,620/year. - Cumulative 25-year cost: £40,500. **Personal life insurance from dividend extraction:** - Annual premium: £165 × 12 = £1,980. - Saul needs £1,980 net cash → gross dividend £2,989 (£1,980 / (1 - 33.75% higher rate)). - Company cost for £2,989 dividend = £3,985 in company profits (after 25% CT). - **Annual company cost: £3,985.** - Cumulative 25-year cost: £99,625. **RLP saves: £99,625 - £40,500 = £59,125 over 25 years** on a comparable life cover. Additionally, RLP payout (£1,875,000) goes to beneficiaries IHT-FREE via discretionary trust. Personal life policy payout: forms part of Saul's estate → potentially subject to IHT at 40% above nil-rate-band thresholds (currently £325k personal + £175k residential nil-rate band + spouse transfer). **IHT planning angle (worst case scenario, Saul + spouse both die together):** - Personal life policy: £1,875,000 payout to children's trust. Above £1,000,000 combined nil-rate-bands → IHT 40% × £875,000 = £350,000. - RLP: £1,875,000 payout direct to children's trust outside the estate. **£0 IHT.** - **Difference: £350,000 of potential IHT** depending on family circumstances. **Combined RLP advantage over 25-year horizon: £59,125 (premium-cost-side) + £350,000 (potential IHT savings) = £409,125** for Saul's family. **Implementation:** 1. Saul's Ltd Co applies for RLP (typically via specialist RLP provider, Aegon, Legal & General, Royal London + others). 2. Discretionary trust drafted by solicitor (~£500-£1,500 setup). 3. Beneficiaries named (typically spouse, children, optionally extended family). 4. Company pays premium directly to insurer; books as CT-deductible expense. 5. On Saul's death: insurer pays £1,875,000 to trust; trustees distribute to beneficiaries as per trust deed. **Important constraints:** - RLP cover ends at age 75 (or earlier policy end-date). - Must remain UK business + UK resident employee. - Pure life cover only, no critical illness rider, no income protection. - For income protection: GIP / PHI is separate (with the payout-tax trade-off). **Strategic note**: RLP is one of the highest-value clean extractions available for sole-director Ltd Cos, combining substantial cost savings + significant IHT planning value + simple administrative structure. Should be a standard consideration for any director earning £50,000+ via Ltd Co with dependants. Specialist financial adviser + solicitor combination typical for setup.

    Statute reference: Income Tax (Earnings and Pensions) Act 2003 ITEPA 2003 s.307 (RLP) + various provisions for GIP/PHI. HMRC manual: EIM21800 onwards + IPTM7000+ (life policies).

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    What's the difference between RLP + Death-in-Service?+
    **Death-in-Service (Group Life Assurance)** requires minimum 2 EMPLOYEES to set up a group scheme (HMRC IPTM7005+). Premiums CT-deductible; payouts outside deceased's estate if in trust. Suitable for businesses with employees beyond the sole director. **Relevant Life Policy (RLP)** is the equivalent for SOLE DIRECTORS or small companies without enough employees for a group scheme. RLP works the same way structurally (company pays, no BIK, trust pays out) but is individually-underwritten for the specific director-employee. RLP is the practical choice for owner-managed Ltd Cos with 1-3 directors + few employees. Above ~10 employees, group Death-in-Service often becomes more cost-efficient.
    Why was GIP salary sacrifice problematic from January 2024?+
    Pre-2022 HMRC guidance (issued via ABI) treated salary-sacrifice GIP as OpRA-acceptable. In late 2022, HMRC REVERSED this position, confirmed in updated guidance. Result: employees receiving sick pay benefit from salary-sacrifice GIP would suffer DOUBLE TAXATION, taxed on the benefit itself (BIK / OpRA equivalent) + taxed on the payout (employment income). HMRC's previous TRANSITIONAL PROTECTION expired 31 December 2023; from 1 January 2024 onwards, salary-sacrifice GIP arrangements face the double-tax risk. **Practical implication**: GIP should be provided as STRAIGHT EMPLOYER-FUNDED BENEFIT (employer pays premiums without salary sacrifice arrangement). Many third-party-marketed salary-sacrifice GIP schemes from 2018-2022 are now problematic, employees + employers should review existing arrangements + restructure to non-sacrifice basis where possible.
    How much life cover can my Ltd Co provide via RLP?+
    Typically 15-30× ANNUAL INCOME (salary + dividends). Limits set by individual insurers + based on age + medical underwriting. For director earning £80,000/year (combined salary + dividends): 20× would give £1.6m of life cover. Maximum cover via RLP usually higher for younger directors (more years of expected earning), lower for older directors approaching age 75 (cover ends at 75). Tax treatment: company pays premium (CT-deductible); on death, trust pays out to beneficiaries (IHT-free); no BIK or NI at any stage. The £1m+ cover ranges available make RLP a substantial benefit for owner-directors with families + dependants. Combined with other estate planning (pension nomination, EIS shares with Business Relief, etc.), RLP fits naturally into Ltd Co director wealth + estate-planning structures.
    Are PHI payouts entirely income-tax-free?+
    **No, PHI / GIP payouts during a claim are TAXED AS EMPLOYMENT INCOME via PAYE** (including employer NI on the payout if applicable). The relief is on the WAY IN (employer premium CT-deductible, no BIK at premium stage) but tax applies on the WAY OUT (sickness benefit received is taxable employment income). For a director on sustained sickness leave receiving £2,500/month PHI payout: PAYE tax at marginal rate (40% higher) = £1,000/month tax + ~£75 employer NI = net payout ~£1,425/month. Personal-purchase PHI from post-dividend income: same tax-free payout but premium paid from post-tax money. The trade-off explains why GIP/PHI is less unambiguously favourable than RLP (which is tax-free at both ends, premium deductible + IHT-free trust payout).

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