// FEATURE //

IN ADDITION TO LEVERAGING OPPORTUNITIES TO IMPROVE TAX EFFICIENCY AND SAFEGUARDING WEALTH, FOR SMALL BUSINESSES, ENSURING BUSINESS CONTINUITY IN THE EVENT OF ILLNESS OR DEATH OF A BUSINESS PARTNER IS ALSO A PRESSING CONCERN.

For small business owners, however, this approach is flawed on two levels. Firstly, the life policy will typically be designed to do no more than pay out the value of the mortgage – it fails to address the wider financial ramifications of the loss of the individual’ s income.

Furthermore, rather than incurring the cost of paying for the policy personally, paying for a life policy through the business is not deemed a benefit in kind and therefore would save both corporation tax and income tax. Designed specifically for business owners to replicate the death in service benefits received by public sector employees and individuals working for larger private sector companies, relevant life policies are incredibly tax efficient for a business – and business owners.

Relevant life also considers the wider financial obligations of each individual, rather than being linked to a mortgage value, and has the further advantage of being placed in a discretionary trust which means that they are not subject to inheritance tax and will be paid directly to beneficiaries.

Safeguarding directors

Relevant life policies can also include terminal illness cover, if required, which pays out before the individual dies, but another important consideration for small businesses is executive income protection, which is also tax efficient. Again, paid by the business and not subject to benefit in kind, executive income protection provides an individual with a percentage of their salary if they are unable to work for a period of time. This not only ensures individuals are safeguarded during times of ill health but, as a justifiable business expense, the investment reduces corporation tax and saves income tax.

A key point about executive income protection is that it recognises the remuneration models typically adopted by business owners. Unlike standard income protection policies which only insure the value of the individual’ s salary, executive income protection considers salary,

26 Intelligent SME. tech