A Relevant Life Plan (often shortened to RLP) is a form of individual life cover that a business can take out for one of its employees or directors. Because the premiums are paid by the employer and the benefits are held in a discretionary trust, this type of policy has become a favourite among owner-managed companies and other small enterprises that do not qualify for, or simply do not need, a full group life assurance scheme.
The aim of this short guide is to give both employers and employees the confidence to decide whether a Relevant Life Plan fits with their overall benefits strategy.
Put simply, a Relevant Life Plan is a single-life term assurance policy arranged and paid for by a company on behalf of an employee. Although the cover is personal to the insured individual, it is treated as an “excepted group life policy” under HMRC rules, provided certain conditions are met.
The chief practical difference from ordinary life insurance is that the premiums are a business expense and the benefit is paid from a separate trust, entirely outside the employee’s estate and usual pension allowances.
Any UK business, limited company, partnership, LLP or sole trader, may arrange a Relevant Life Plan for an employee. In practice, the most common users are directors of small, limited companies and high-earning employees who are concerned about keeping pension allowances free for retirement saving.
For Employers:
Offering a Relevant Life Plan is a simple way to demonstrate a duty of care to staff and to stand out in a competitive labour market. Premiums normally qualify as an allowable expense for corporation tax purposes and do not attract employer National Insurance. Cash-flow friendly monthly premiums make budgeting straightforward, and there is no P11D reporting burden because the cover is not regarded as a benefit-in-kind.
For Employees:
From the employee’s perspective, the cover is effectively “free” because the company pays. Premiums are not subject to Income Tax nor to employee National Insurance. In the event of death, or a diagnosis of terminal illness where the insurer’s definition is met – the trustee pays a cash lump sum to the chosen beneficiaries, and that payment is outside the estate for inheritance-tax purposes.
Importantly, the benefit sits outside the pension regime and therefore does not eat into the individual’s lump-sum or death-benefit allowances that replaced the former Lifetime Allowance.
These combined savings often make a Relevant Life Plan significantly more cost-effective than the employee arranging an equivalent level of personal cover from taxed income
Directors drawing significant income through salary and dividends, professionals whose pension funding already brushes against the new lump-sum and death-benefit allowances, and fast-growing start-ups that want to offer meaningful protection without the red tape of a full group scheme are all prime candidates. Even a sole employee can be covered, provided he or she is paid through PAYE, and the policy meets the qualifying conditions.
Because the tax treatment depends on strict HMRC rules, it is essential to use the insurer’s specimen trust wording and to double-check that the chosen benefit formula, term and eligibility criteria comply. Most advisers recommend reviewing the cover annually, especially after promotions, pay rises or corporate restructuring. Documentation should also be kept up to date so that any change in company ownership or employee role is reflected promptly.
The simplest route is to speak with a financial adviser or protection specialist who is familiar with Relevant Life Plans. They can recommend a reputable insurer, complete the trust paperwork and ensure everything lines up with HMRC guidance. Once the policy is in place, communicate its value clearly to staff so they appreciate the security it adds to their overall reward package.
Relevant Life Plans offer a rare win-win: meaningful protection for employees’ families and generous tax efficiency for the business footing the bill. By combining flexibility, straightforward administration and potential savings on both corporate and personal taxes, an RLP can be a powerful addition to any small company’s benefits toolkit.
As always, professional advice is essential to tailor the cover correctly and preserve every tax advantage, but for many growing firms the question is no longer why adopt a Relevant Life Plan, it is simply when.
The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK
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