Is relevant life insurance liable for inheritance tax?
Relevant life insurance is a popular benefit for employees and employers alike.
It’s particularly popular for higher earning employees because the premiums aren’t part of their annual allowance for registered pension scheme contributions.
And it doesn’t count towards their pension’s lifetime allowance.
But this isn’t the only tax benefit employees get.
One thing we are frequently asked is whether Relevant Life Insurance is liable to inheritance tax.
That’s what we’re going to look at in this guide.
Relevant Life Insurance and inheritance tax
Typically speaking, Relevant Life Insurance payments aren’t liable for inheritance tax payments.
That’s because the policy itself isn’t actually owned by the employee, so doesn’t count as part of the estate that’s used to calculate inheritance tax contributions.
Why doesn’t Relevant Life Insurance count towards inheritance tax?
It’s because Relevant Life Insurance plans are legally required to be held in a trust.
The setting up of Relevant Life Insurance is relatively simple.
The main roles to fill are the settler who pays the premiums, the trustees who are the legal owners of the fund and control the benefits, and the beneficiaries who receive the payout.
The fact that the plan is held in a trust like this is what means it doesn’t count towards an employees’ estate so isn’t included in any inheritance tax calculations.
It also means the payments can be made quickly in the event of a death in service.
When could a Relevant life Insurance trust be liable for inheritance tax?
While employees’ beneficiaries won’t be liable to pay any inheritance tax, it’s possible that the trust could become liable for some charges.
There are two circumstances when a Relevant Life Insurance trust could become liable for inheritance tax.
The first is at every 10 year anniversary of the trust being created.
The other circumstance is if the beneficiary leaves the trust after the first 10 years - for example if they leave their employer.
In these cases, there’s potential that the trust may have to pay some inheritance tax before the payout is sent to the beneficiaries’ family.
Want to find out more about Relevant Life Insurance?
If you want to find out whether Relevant Life Insurance could work in your business, then get in touch with us today.
We have a team of insurance experts who can work with you to build a policy that suits you and your employees and help create some peace of mind.