UK Relevant Life Policy: Tax-Efficient Director Cover

A relevant life policy is a corporate-paid life insurance arrangement for directors and employees of small companies. It is designed to provide tax-efficient cover without the disadvantages of group death-in-service schemes for small numbers of insured. This article explains how it works.

How it works

The company is the policyholder and pays the premiums. The insured employee or director is the life assured. The policy is written in a relevant life trust for the beneficiaries (typically family). On death within the term, the payout goes to the beneficiaries via the trust.

Tax treatment

Premiums are treated as a deductible business expense for corporation tax. They are not a P11D benefit for the insured. The payout to the trust is typically outside the insured's estate for IHT and outside the beneficiaries' income for income tax.

Eligibility and cover limits

The insured must be an employee or director of the company. Cover is typically up to a multiple of salary (e.g. 15 to 25 times) or a fixed maximum sum. The specific limits depend on the insurer's product.

Comparison with personal cover

For a higher-rate taxpayer running their own company, relevant life can be materially cheaper than personally paid life insurance after tax. The premium is paid before corporation tax and is not subject to personal income tax, dividend tax, or NICs.

Comparison with death-in-service

Group death-in-service schemes are typically structured as registered group life schemes with their own tax considerations. Relevant life is a non-registered scheme available even where a group scheme is not practical (e.g. small companies with few employees).

How relevant life works in detail

The company is the policyholder and pays the premiums. The insured employee or director is the life assured. The policy is written in a relevant life trust for the beneficiaries (typically family). On death within the term, the payout goes to the beneficiaries via the trust.

The trust structure is set up at policy inception and is a defined HMRC-approved structure that allows the tax treatment to apply. The trustees are typically the company directors (excluding the insured) or external trustees. The beneficiaries are typically the insured's family.

The cover is typically a multiple of salary (often 15 to 25 times) or a fixed sum agreed with the insurer. Some insurers have specific limits; others assess the case based on the company's circumstances and the insured's role.

The policy is term-based; the cover ends at a fixed point (often age 65 or 75) unless the policy is converted to a personal policy on the insured leaving the company. Some policies include guaranteed insurability options that allow conversion without fresh underwriting.

Tax treatment in detail

Premiums are treated as a deductible business expense for corporation tax. The company can claim the premiums against profits, reducing the corporation tax liability. The deductibility is straightforward; the premiums are treated as employee benefits expenses.

Premiums are not treated as a P11D benefit for the insured employee. This is the key tax advantage: the company effectively pays for life cover without the insured being treated as receiving a taxable benefit. For higher-rate or additional-rate taxpayers, this saves substantial personal tax.

The payout to the trust is typically outside the insured's estate for IHT and outside the beneficiaries' income for income tax. The trust structure achieves both: the cover passes outside the estate (IHT efficiency) and the income tax exemption applies to the beneficiaries.

Comparing the tax cost: a higher-rate taxpayer paying GBP 100 per month for personal life cover effectively spends GBP 100 of post-tax income (around GBP 167 of pre-tax income at 40% rate). A company paying GBP 100 per month for equivalent relevant life cover spends GBP 100 of pre-tax profit (around GBP 75 of post-corporation-tax cost at 25% corporation tax). The effective cost saving for the household is around 55% in this example.

Eligibility and cover limits

The insured must be an employee or director of the company. The relationship must be a genuine employment relationship; the structure cannot be used by sole traders or partners.

Cover is typically up to a multiple of salary (e.g. 15 to 25 times) or a fixed maximum sum. The specific limits depend on the insurer's product. Some insurers will write large covers (GBP 1 million+) for senior executives or directors; others have lower caps.

The cover should reflect the legitimate business need. Excessive cover (significantly above what would be reasonable for the insured's role and salary) may face HMRC scrutiny on the deductibility and trust treatment.

For small companies with one or two directors, relevant life can provide cover that would be impractical to arrange through a group death-in-service scheme (which typically requires more members for cost-efficient pricing). Relevant life fills this gap for small employers.

Comparison with personal cover and group schemes

For a higher-rate taxpayer running their own company, relevant life can be materially cheaper than personally paid life insurance after tax. The premium is paid before corporation tax (so before the company has paid 25% corporation tax) and is not subject to personal income tax, NI, or dividend tax.

For directors taking dividends, the relevant life premium effectively comes out of company profits before tax rather than after dividend tax. The savings are particularly significant for additional-rate dividend taxpayers (39.35% from April 2024).

Group death-in-service schemes are typically structured as registered group life schemes with their own tax considerations. Relevant life is a non-registered scheme available even where a group scheme is not practical (e.g. small companies with few employees).

For employees not interested in the company structure (such as senior executives at large companies with group cover), the group scheme may provide adequate cover. For directors and executives wanting cover beyond the group scheme, relevant life adds tax-efficient personal cover.

Practical considerations

Setting up relevant life cover involves choosing an insurer that offers the product, completing the relevant life trust documentation, and arranging the policy. Most major UK life insurers offer relevant life products; specialist brokers can identify the best fit.

The trust documentation is provided by the insurer and is part of the standard product. The trustees (typically other company directors or external trustees) must agree to act; their role is to receive the payout on death and distribute to beneficiaries.

If the insured leaves the company, the relevant life cover typically ends. Some policies include 'continuation' options allowing conversion to personal cover without fresh underwriting; without such options, leaving the company means losing the cover.

For the cover to maintain the tax treatment, the insured must be a genuine employee or director with a real role in the company. Schemes set up purely for tax avoidance (such as paying excessive salaries to family members to qualify for cover) face HMRC challenge.

HMRC tax treatment under EIM21801

The favourable tax treatment of relevant life policies is set out in HMRC's Employment Income Manual at EIM21801 and related sections. The framework permits a UK company to pay premiums for a life policy on the life of an employee or director, with the premiums treated as a deductible business expense and not as a P11D benefit for the insured employee.

For the deduction, the policy must meet specific conditions: it must be a 'relevant life policy' as defined; the policy must be held in a relevant life trust for the benefit of the insured's family; the policy must be life-only (not critical illness combined); the policy must not have any investment element.

The tax efficiency depends on the relative tax rates. For a higher-rate taxpayer director, the comparison: personal premium of GBP 100 per month requires GBP 167 of gross income (40% tax band). Equivalent relevant life premium of GBP 100 per month requires GBP 100 of company profit (25% corporation tax rate, so effective cost GBP 75 after tax deduction). The net cost to the household is materially lower.

The practical takeaway: for directors and senior employees of small companies wanting tax-efficient life cover, relevant life is typically the most cost-effective structure; specialist financial advice can confirm suitability and arrange the policy.

Disclaimer

This article provides general information based on rules and figures published by UK government and regulator sources as of May 2026. It is not personal financial, legal, immigration or tax advice. Rules, fees and figures change and individual circumstances vary. Readers should check primary sources or consult a qualified, regulated adviser before acting on any information here.

Frequently asked questions

Can sole traders use relevant life?

No. Sole traders are not employees of a company. Relevant life requires an employer-employee or company-director relationship. Sole traders seeking similar tax-efficient cover may consider incorporating their business; this has wider tax and admin implications that need specialist advice.

Does the policy continue if the insured leaves the company?

Typically the policy can be assigned to a new employer or to the individual; specific arrangements depend on the insurer. Without assignment or continuation, the cover ends when the insured leaves the company. Continuation options that allow conversion to personal cover without fresh underwriting are particularly valuable; these allow the insured to keep cover even if their health has deteriorated.

Can the policy have critical illness attached?

Standard relevant life is life-only. Adding critical illness changes the tax treatment and is typically not done within the relevant life structure. For combined life and CI cover, separate personal CI cover alongside relevant life can provide the comprehensive structure with the partial tax efficiency on the life cover portion.

How is the payout taxed?

The payout into the trust is typically outside the insured's estate for IHT and not subject to income tax on the beneficiaries. The trust structure achieves the IHT and income tax efficiency. The beneficiaries receive the payout free of these taxes.

Is there a lifetime limit on relevant life cover?

Relevant life policies are tested for inclusion in the lifetime allowance (where this applies); from 6 April 2024 the lifetime allowance has been abolished but the specific tax treatment of large payouts may still apply. The Lump Sum and Death Benefit Allowance applies to relevant life payouts. Specialist tax advice for large covers helps confirm the position.

Can multiple directors of the same company have separate relevant life policies?

Yes. Each director can have their own relevant life policy with the company as policyholder. The premiums are deductible against company profits; each director's cover is independent. This is common for small companies with two or more directors.

Are relevant life premiums shown on payslips?

No. Because the premiums are not P11D benefits, they do not appear on payslips or tax codes. The employee's tax position is not affected by the relevant life premium. This is one of the key features that makes the structure tax-efficient.

Frequently asked questions

Can sole traders use relevant life?

No. Sole traders are not employees of a company. Relevant life requires an employer-employee or company-director relationship. Sole traders seeking similar tax-efficient cover may consider incorporating their business; this has wider tax and admin implications that need specialist advice.

Does the policy continue if the insured leaves the company?

Typically the policy can be assigned to a new employer or to the individual; specific arrangements depend on the insurer. Without assignment or continuation, the cover ends when the insured leaves the company. Continuation options that allow conversion to personal cover without fresh underwriting are particularly valuable; these allow the insured to keep cover even if their health has deteriorated.

Can the policy have critical illness attached?

Standard relevant life is life-only. Adding critical illness changes the tax treatment and is typically not done within the relevant life structure. For combined life and CI cover, separate personal CI cover alongside relevant life can provide the comprehensive structure with the partial tax efficiency on the life cover portion.

How is the payout taxed?

The payout into the trust is typically outside the insured's estate for IHT and not subject to income tax on the beneficiaries. The trust structure achieves the IHT and income tax efficiency. The beneficiaries receive the payout free of these taxes.

Is there a lifetime limit on relevant life cover?

Relevant life policies are tested for inclusion in the lifetime allowance (where this applies); from 6 April 2024 the lifetime allowance has been abolished but the specific tax treatment of large payouts may still apply. The Lump Sum and Death Benefit Allowance applies to relevant life payouts. Specialist tax advice for large covers helps confirm the position.

Can multiple directors of the same company have separate relevant life policies?

Yes. Each director can have their own relevant life policy with the company as policyholder. The premiums are deductible against company profits; each director's cover is independent. This is common for small companies with two or more directors.

Are relevant life premiums shown on payslips?

No. Because the premiums are not P11D benefits, they do not appear on payslips or tax codes. The employee's tax position is not affected by the relevant life premium. This is one of the key features that makes the structure tax-efficient.