Relevant Life Trusts
The Complete Guide for UK Business Owners
A Relevant Life Trust is a specialist legal arrangement used to hold a life insurance policy for an individual employee or director. Established under the same legislative framework as modern pensions, it allows a business to provide high-value "death-in-service" benefits with significant tax advantages for both the employer and the employee.
Legal & General and other providers often recommend these for small businesses that don't need a full group scheme.
How Relevant Life Insurance (RLI) Works
Relevant Life Insurance is a term assurance policy specifically for employees (including salaried directors). Unlike standard life insurance, it is structured as a business-funded benefit that remains outside the employee's personal estate.
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1. Age Limits & Retirement Alignment
To qualify for tax-free status, RLI must adhere to strict age criteria defined by HMRC guidelines:
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The "Pension Age" Rule: Policies are typically written to run until the employee’s intended retirement age.
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Maximum Expiry: By law, the cover must terminate by age 75.
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Eligibility: Most plans can be started for employees between the ages of 16 and 73, provided the term ends before their 75th birthday.
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2. Premium Payments: The Employer's Role
A defining feature of RLI is that the company pays 100% of the premiums.
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Business Expense: Premiums are usually deductible for Corporation Tax, provided they meet the "wholly and exclusively" for business purposes rule.
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No Personal Tax: Because the company pays, the employee faces no Benefit-in-Kind tax and no National Insurance hits.
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Direct Funding: All payments must originate from the employer’s business bank account. If an employee pays personally, the tax-efficient "Relevant Life" status is lost.
Critical Risks: What Happens If the Business Fails?
While RLI offers superb tax efficiency, it is tied directly to the employer's survival.
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Risk of Policy Lapse: If the company enters liquidation or goes "bust," premium payments will cease. Without funding, the life insurance cover will lapse, leaving the employee unprotected.
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No Surrender Value: RLI is a protection-only policy. If the business fails, there is no cash sum or "pot" to reclaim; the policy simply ends.
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The "Portability" Safety Net: Most modern RLI policies include a continuation option. If the company closes, the employee may be able to take over the policy personally or transfer it to a new employer, though they would then lose the initial tax-deductible benefits of the company-pay structure.
Why Use a Relevant Life Trust?
The Trust is the legal "bucket" that holds the policy. Without it, the tax benefits vanish.
Setting Up Your Trust
To ensure the policy is valid from day one, you must follow these steps usually facilitated by your provider (e.g., Royal London):
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1. Select Trustees: Appoint at least two people (often the director and a spouse or professional) to manage the trust.
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2. Sign the Deed: The Trust Deed must be executed alongside the insurance application.
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3. Nominate Beneficiaries: Complete a "Nomination of Benefit" form to tell the trustees who should receive the funds.
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