Business Protection Guide

A Plan For Every Business

With a £1.35 trillion gap in the business protection market, there’s an opportunity for your business. We’ve produced this guide to help you make the most of this potential when setting up your client’s business protection solutions.

Different types of business will need a business protection solution that’s right for them.

In this guide we provide process maps highlighting the key stages when setting up our Key Person Cover, Share Protection Cover, Business Loan Protection and Relevant Life Plan. These maps show how a policy should be set up, who would own the policy and any tax implications each plan may have on the individual or the business. Each map covers all these areas and explains each step simply, so that you have a helpful guide to help you set up the client’s arrangement correctly.

 

Business Protection Solutions

Key Person Protection

Designed to help pay the policy proceeds directly to the business, which can be used to help replace a key person, cover the loss of profits that may occur or repay a loan. The policy proceeds could help a business to continue trading.

Share Ownership Protection

Designed to help provide the surviving owners with the funds to purchase the deceased’s or critically ill owner’s share of the business.

Business Loan Protection

Designed to help pay off any outstanding loans the business may have should a main shareholder, director, partner or key individual be diagnosed with a critical illness (if benefit is chosen) or die.

Relevant Life Plan

A tax efficient single life Death in Service benefit for employees or directors of a business. The policy proceeds are paid to the Trustees (employer) and the benefit is written under Trust for the life assureds beneficiaries.

 

Key Person Protection

Designed to help pay the policy proceeds directly to the business, which can be used to help replace Key Person, cover the loss of profits that may occur or repay a loan.

Type of Business
Limited Company / LLP / Scottish Partnership Partnership
Eligibility / Set up Limited Company
LLP
Scottish Partnership
Life of another In Trust
Life Assured Employee or Director Partner or the Employee Partners
Documents Required Business Protection application form. Business Protection application form. Business Protection application form.
Partnership Protection Trust deed.
Plan Owner Limited Company
LLP
Scottish Partnership
Remaining Partners Life Assured
Tax on Individual None None Periodic and exit charge could apply to Trust.
Tax Relief on Premiums May be available subject to Anderson principles being met. The business should check this with their local inspector of taxes. For more information please refer to our Guide to Key Person Protection. Employee – maybe. Partner – no Income Tax or National Insurance liabilities. None
Tax on Business The policy proceeds are likely to be liable to business tax if tax relief is given on the premiums. The business should check with their local inspector of taxes. The policy proceeds are likely to be liable to business tax if tax relief is given on the premiums. The partnership should check with their local inspector of taxes. None

 

Type of Business
Sole Trader
Eligibility Sole Trader on life of Employee Own life
Life Assured Employee Own life
Documents Required Business Protection application form, with ownership benefits section to be completed. Business Protection application form. Discretionary Trust deed.
Plan Owner Sole Trader Sole Trader
Tax On Individual None None
Tax Relief on Premiums May be available None
Tax on Business None None

 

Share Ownership Protection

Designed to help provide the surviving owners with the funds to purchase the deceased’s OR critically ill owner’s share of the business.

Type of Business
Share Protection
Limited Company, Partnership, LLP
Company Buy Back
How Are Funds To Make The Purchase Provided? OWN LIFE UNDER TRUST
The surviving owners receive the funds from the Trustees. Either the owners or the Legal Personal Representatives (LPR) can then exercise the option agreement to buy or sell the share of the business.
LIFE OF ANOTHER
The surviving owners receive funds from the plan. The surviving owners or (LPR) can exercise the option to buy or sell the share of the business.
COMPANY SHARE PURCHASE
Company receives the funds from the plan and buys the shares from LPR of the deceased’s.
Life Assured Director, Partner, Member. Director, Partner, Member. Director
Documents Required Business Protection application form, Share Protection Trust form and cross option agreement. Business Protection application form and cross option agreement. Business Protection application form and cross option agreement.
Plan Owner Director, Partner, Member. Director, Partner, Member. The Company
Tax on the Individual If the business pays the premium this will be classed as remuneration and the individual will therefore be subject to Income Tax and National Insurance. If the business pays the premium this will be classed as remuneration and the individual will therefore be subject to Income Tax and National Insurance. None
Who Pays The Premmium Director, Partner or the Member. Director, Partner or the Member. The Company
Tax on the Deceased’s Estate OWN LIFE UNDER TRUST
INHERITANCE TAX (IHT)
Any benefits from the policy will be payable to the Trustees and not to the Director’s, Partner’s or Member’s estate. In addition, the policy premiums may fall within one or more of the inheritance tax exemptions. If a Director, Partner or Member dies and the cross option method has been used then any business property relief on their share of the business would be preserved.
CAPITAL GAINS TAX
There is no capital gains tax on death but the beneficiaries of the estate may be liable for the increase in value of the share of the business between death and sale, although in practice this would be rare. However, in the event of the sale of a Partner’s, Member’s or shareholding Director’s share due to a terminal or critical illness, a capital gains tax liability may arise.
LIFE OF ANOTHER
INHERITANCE TAX (IHT)
The benefits from the policy will be payable to the surviving Directors, Partners or Members. If a Director, Partner or Member dies and the cross option method has been used then any business property relief on their share of the business would be preserved.
CAPITAL GAINS TAX
There is no capital gains tax on death but the beneficiaries of the estate may be liable for the increase in value of the share of the business between death and sale, although in practice this
would be rare. However, in the event of the sale of a Partner’s, Member’s or shareholding Director’s share due to a terminal or critical illness, a capital gains tax liability may arise.
Seek legal and financial advice.
Tax on the Business None, the business would not be liable to
any tax.
None, the business would not be liable to any tax. Premiums are paid by the company but Corporation
Tax relief would not be available, as the policy is not
to be used to meet a loss of profits on death. For
company accounting periods starting on or after
1 April 2008, all gains made under policies owned by
companies fall within the ‘loan relationship‘ rules.

 

Business Loan Protection

Designed to help pay off any outstanding loans the business may have should a main shareholder, Director, Partner or key individual be diagnosed with a critical illness (if benefit is chosen) or die.

Type of Business
Limited Company / LLP / Scottish Partnership Partnership
Name of Business Limited Company
LLP
Scottish Partnership
Life of another In Trust
Life Assured Employee can include Directors Partner or the Employee Partners
Documents Required Business Protection
Application Form
Business Protection application form Business Protection application form.
Partnership Protection Trust deed.
Plan Owner Limited Company
LLP
Scottish Partnership
Remaining Partners Life Assured
Tax On Individual None None Periodic and exit charge could apply to Trust.
Tax Relief on Premiums None None None
Tax on Business None None None

 

Type of Business
Sole Trader
Name of Business Sole Trader on life of Employee Own life
Life Assured Employee Own life
Documents Required Business Protection application form, with ownership benefits section to be completed. Own life
Plan Owner Sole Trader Sole Trader
Tax On Individual None None
Tax Relief on Premiums None None
Tax on Business None None

 

Relevant Life Plan

A tax efficient single life Death in Service benefit for employees or directors of a business. The policy proceeds are paid to the Trustees (employer) and the benefit is written under Trust for the life assureds beneficiaries.

Type of Business
Limited Company / PLC Partnership / LLP / Sole Trader
Eligibility / Set up Available to Directors and/or Employees of the Company Salaried Partners or Employees of the Partnership/LLP/Sole Trader.
Documents Required Relevant Life Plan application and Trust form to Legal & General RLP Nomination form to Employer (Trustee). Relevant Life Plan application and Trust form to Legal & General RLP Nomination form to Employer (Trustee).
Trustee (Automatically) Other Can Be Added In Part B2 Company Partners of partnership/LLP/Sole Trader
Settlor Of Trust – Plan Owner Company Partners of partnership/LLP/Sole Trader
Beneficiaries Of Trust Add any individual who is to be a beneficiary but not already listed in part B4 of the Trust. Add any individual who is to be a beneficiary but not already listed in part B4 of the Trust.
Tax On Individual No P11d benefit therefore no Income Tax or National Insurance liabilities No P11d benefit therefore no NIC’s/Income Tax.
Tax On Business Premiums may be treated as a business expense and claimed against Corporation Tax as long as the wholly and exclusively rules are met* Premiums may be treated as a business expense and claimed against Corporation Tax as long as the wholly and exclusively rules are met*

 

*We recommend that the employer (normally through their accountant) check with their local inspector of taxes to gain comfort for their own particular circumstances.
 

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