Contractors need the endurance of Mo Farah, the speed of Bradley Wiggins and the agility of Tom Daley to navigate what is an increasingly hostile tax landscape.
The good news is that hundreds of one-man limited company Contractors have got ahead of the taxman and are now funding life insurance tax efficiently through their businesses, having replaced existing cover with what is known as a ‘relevant life policy’.
ContractorFinancials were proud to be chosen by a major insurance provider to help introduce this new policy to the UK protection market in late 2009 and in the 2 years since our clients will have collectively saved tens of thousands of pounds in tax.
Contractors left out in the past
Larger employers had always benefited from tax breaks on the provision of ‘death in service’ arrangements but Freelancers and SMEs were poorly catered for by mainstream insurance products that always ran the risk of landing you with a benefit in kind charge if the premiums were paid for out of your company. ‘Relevant life policies’ now allow you to avoid tax charges on this essential protection for your family.
Thanks to a use of a specially worded trust document, your one man limited company now has the chance to tax efficiently provide death in service benefits for its employees. The premiums are offset against corporation tax, with any eventual payout also free of inheritance tax.
Contractors using a One Man Ltd company can therefore offload the cost of life insurance to your business rather than fund the cost personally from your post-tax income. The premiums are written off as a legitimate business expense for corporation tax purposes and a spouse who is connected to the firm as, for instance, company secretary can also be covered.
Case study – Oil and Gas Contractor Tim Broadbent currently draws an extra £40pm dividend to meet a £25pm ‘net’ life insurance that protects his family by repaying a £250k mortgage and providing wife Sophie and children Holly and Edward with additional funds in the event of the loss of the main breadwinner. A new relevant life plan funded via the company bank account saves approx £180pa in income tax or gives him the option to keep the £40pm overall cost the same but greatly extend the cover provided so that Sophie and the kids are better cared for in the event that the worst should happen to Tim.
In contrast to ‘Keyman’ insurance, where sums paid out on death would be made tax free into the company, only to then potentially suffer income tax when any dependents received what was due to them, ‘relevant life’ cover, benefits are payable to the beneficiaries through a discretionary trust. This trust not only keeps the money safe from any liabilities that the company has but also makes the policy easier to transfer between employers or alternatively you can go back to paying premiums personally again from post tax earnings should you return to a permi role.
Our advisers now routinely switch personally funded life cover for company funded for our limited company clients because it really is a no brainer that you should make full use of any tax breaks still available. The good news is that it doesn’t require Olympian like effort to switch and our expert advisers can ensure continuity of cover for you and protection for your family.
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