Relevant Life Trusts
Tax-Efficient Life Cover For Directors and Key Employees
A Relevant Life Trust is a specialist arrangement used to hold a particular kind of life insurance policy — known as a Relevant Life Plan (RLP) — for an individual director or employee. Established under the same legislative framework as modern pensions, it allows a business to provide valuable "death-in-service" style benefits to a single person, with significant tax advantages for both the company and the individual.
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For small companies and owner-managed businesses without a full group death-in-service scheme, a Relevant Life Plan held in trust can be one of the most tax-efficient ways to provide meaningful protection for a director's or key employee's family.
How a Relevant Life Plan Works
A Relevant Life Plan is a term assurance policy specifically designed for employees and salaried directors. Unlike a standard personal life policy, it's structured as a business-funded benefit that sits outside the employee's personal estate. Three features define how it operates:
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Age and Term
To qualify for its tax-favoured status, the policy must meet HMRC's rules. Cover typically runs to the employee's intended retirement age and must end by age 75 at the latest. Most plans can be set up for employees aged between 16 and 73, provided the term concludes before their 75th birthday.
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Premiums are Paid by the Company
The defining feature of the arrangement is that the business pays all of the premiums:
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They are usually allowable as a business expense for corporation tax, provided they meet the "wholly and exclusively" test for business purposes.
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The employee faces no benefit-in-kind charge and no National Insurance liability on the premiums.
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Payments must come from the company's bank account — if the employee pays personally, the Relevant Life status is lost, along with the tax efficiency that comes with it.
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The Trust
The policy is written into a Relevant Life Trust at the outset. The trust is what makes the whole structure work — without it, the payout would fall back into the employee's estate and the tax advantages would disappear.
Why a Relevant Life Trust Matters
The trust is the legal "container" that holds the policy and directs the proceeds to the right people in the right way. Specifically, it ensures that:
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The payout doesn't form part of the employee's estate — so it isn't liable to inheritance tax on their death.
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The proceeds reach the family quickly, without waiting for probate.
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The policy doesn't pass to the company — keeping the benefit clearly directed to the employee's family rather than the business.
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The benefit remains outside the employee's pension lifetime allowance considerations, where relevant.
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Setting up the trust correctly, at the same time as the policy, is essential — it is not an afterthought. A policy taken out without a trust, or with a poorly drafted one, can lose its entire tax efficiency.
Setting Up The Trust
The trust is normally established alongside the insurance application, typically with the help of your adviser and the insurance provider. The key steps are:
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Appoint at least two trustees. This often includes the director and a spouse or trusted professional. The trustees manage the trust and ultimately direct the pay-out.
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Execute the trust deed. The deed must be signed at the same time as the policy is taken out — not retrofitted later.
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Nominate beneficiaries. A nomination of benefits form tells the trustees who should receive the funds. It's not legally binding, but it gives the trustees clear guidance on the employee's wishes.
The Risks Worth Knowing
Relevant Life Plans are tax-efficient, but they're also tied closely to the employer's continued existence. It's worth being clear about what that means:
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The cover depends on the company paying the premiums. If the business closes or enters liquidation and premiums stop, the policy will lapse and the cover ends.
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There's no surrender value. Like all term assurance, an RLP is protection-only. If the business fails, there's no cash value to recover — the policy simply terminates.
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Most modern policies include a continuation or "portability" option. This typically allows the employee to take over the policy personally or transfer it to a new employer if the original business closes. They'd then lose the company-paid tax advantages, but at least the protection itself continues.
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Eligibility matters. RLPs are designed for employees, including salaried directors — they're not generally suitable for sole traders or equity partners, who should consider other forms of protection.
Is a Relevant Life Trust Right for Your Business?
These plans suit a particular set of circumstances especially well: small or owner-managed companies, directors who want substantial personal life cover paid for tax-efficiently through the business, and key employees the business wants to look after without the cost or complexity of a full group scheme. They're less suited where there's already a comprehensive group death-in-service arrangement or where the individual isn't a genuine employee of the company.
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The right answer depends on your circumstances, the structure of the business, and how this arrangement fits with the wider personal and corporate planning of the director or employee concerned.
Talk It Through With Us
A Relevant Life Plan held in trust is one of the most tax-efficient ways for a company to provide meaningful protection for a director's or key employee's family — but it has to be set up correctly to work. We'd be glad to talk through whether it fits your situation.