If you run a limited company, you’ll know that tax efficiency matters. Every pound you can legitimately save in tax is a pound that stays in your business or your pocket. A relevant life policy is one of the few insurance products that offers genuine tax advantages, and that’s the main reason many directors and business owners choose one.
Unlike many financial products that promise tax breaks but deliver little, a relevant life policy actually delivers substantial tax advantages. We’ll walk through how each one works.
What Is a Relevant Life Policy?
A relevant life policy is a life insurance arrangement written in trust for your employees. Your company pays the premiums, and if an employee dies during the policy term, their family receives a tax-free lump sum. The key word here is “relevant”, it means the policy meets specific HMRC rules, and when it does, the tax treatment is particularly favourable.
Benefit One: Corporation Tax Relief on Premiums
This is a major benefit. When your company pays premiums for a relevant life policy, those premiums are treated as an allowable business expense. That means they’re deductible from your company’s taxable profits.
Let’s use a concrete example. Say your company makes a profit of £100,000 in a year and you pay £5,000 in relevant life policy premiums. Instead of paying corporation tax on £100,000, you pay it on £95,000.
Corporation tax is currently 19% for small companies with profits up to £50,000 (with marginal relief applying between £50,000 and £250,000, and a main rate of 25% over £250,000). At 19%, that £5,000 deduction saves you £950 in corporation tax.
If you have ten employees and the total premiums are £15,000, a company paying 19% corporation tax saves £2,850 in corporation tax.
This is different from many other types of personal protection. Life insurance for employees isn’t always tax-deductible unless it’s structured correctly. A relevant life policy is structured specifically to satisfy HMRC criteria so you get the relief.
Benefit Two: No P11D Benefit in Kind
Here’s where things get interesting for your employees. If your company provides something of value to an employee, it’s normally treated as a “benefit in kind” and triggers a P11D form at the end of the tax year.
A P11D is a tax report on benefits given to employees. It creates administrative work and increases the employee’s income tax liability.
With a relevant life policy, there is no P11D benefit in kind. Your company pays the premiums, the employee is covered by life insurance, and there’s no taxable benefit to report to HMRC.
This means your employees don’t face a surprise tax bill just because the company has provided them with protection. If an employee is earning £50,000 and the company pays £500 towards their life cover, they don’t have to add £500 to their taxable income.
Compare this to some other benefits. If you provide a company car, there’s a significant benefit in kind. If you give an employee a cash bonus or extra salary, it’s fully taxable. But a relevant life policy sits in a special tax category where the employer receives corporation tax relief while the employee faces no personal tax charge.
Benefit Three: Exempt from National Insurance Contributions
National Insurance is another key consideration for payroll. Employers pay Class 1 Employer National Insurance on employee salaries, and Class 1A National Insurance on most benefits in kind. Employees pay Employee National Insurance on their earnings.
Employer National Insurance is 15% on earnings above the secondary threshold of £5,000 per year, and Employee National Insurance is 8% on main earnings.
Because a qualifying relevant life policy is not treated as taxable income or a benefit in kind, the premiums are not subject to Employer or Employee National Insurance contributions.
This means providing life cover via a relevant life policy incurs £0 in Employer or Employee National Insurance. If you tried to achieve the same result by paying employees an extra £15,000 in salary so they could buy personal policies, the company would incur £2,250 in Employer National Insurance (at 15%), and the employees would pay Income Tax and National Insurance on those extra earnings.
How These Benefits Add Up
Let’s model a realistic scenario:
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Company profile: 10 employees
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Annual relevant life premiums: £15,000
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Corporation tax relief (at 19%): £2,850 saving
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National Insurance on premiums: £0 liability (exempt)
Direct Company Saving: By deducting the £15,000 premium as a allowable business expense, the company saves £2,850 per year directly in Corporation Tax.
Furthermore, because relevant life insurance premiums are not subject to National Insurance contributions, the company incurs no Employer NI liability on this outlay (unlike paying £15,000 in gross salary, which would trigger an extra £2,250 in Employer NI at 15%).
Over ten years, the direct Corporation Tax saving alone amounts to £28,500.
Why This Matters
The reason businesses take out relevant life policies is simple: life insurance for employees is a valuable protection benefit, and structuring it correctly maximizes tax efficiency.
If you’re a director of a limited company and you’re paying for life cover out of your personal taxed income or without an HMRC-compliant trust structure, you may be missing out on corporation tax relief.
The policy also provides genuine financial security. If an employee dies, their family receives a tax-free lump sum held in trust.
What You Need to Know
A relevant life policy must meet HMRC rules to qualify for these tax benefits. The rules require that:
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The policy must be written in trust for the benefit of the employee’s family or dependants, not the business.
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The policy must only provide life protection (no cash surrender value or critical illness add-ons).
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The premiums must be paid directly by the employer.
Getting Professional Advice
While the tax advantages are clear, whether a relevant life policy is right for your company depends on your specific business structure, profit levels, and workforce needs.
A qualified financial adviser can review your situation and explain how to structure cover correctly.
This article is for information only and does not constitute financial advice. To find out if a relevant life policy is right for your circumstances, speak to a qualified financial adviser. The benefits to the treatment of tax will depend on your individual circumstances and may be subject to change in future.
References
BDO UK. (2024, November 25). Class 1 National Insurance changes. https://www.bdo.co.uk/en-gb/insights/tax/global-employer-services/class-1-nic-changes-national-insurance
HM Revenue & Customs. (2023). Employment Income Manual: EIM15045: Excepted group life policies (relevant life policies). GOV.UK. https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim15045
HM Revenue & Customs. (2024). Business Income Manual: BIM45530: Specific deductions: key man insurance and relevant life policies. GOV.UK. https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45530
Legal & General. (2025). Relevant life insurance and tax rules. https://www.legalandgeneral.com/insurance/business-protection/relevant-life-insurance/tax-treatment/