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.