This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and HMRC rules, which may change in the future. Speak to an FCA-regulated financial adviser or protection specialist before altering or transferring insurance policies.
If you’re a limited company director closing down or winding up your business, the process raises plenty of practical questions. One critical issue that often gets overlooked until the last minute is: what happens to your Relevant Life Policy (RLP)?
A Relevant Life Policy is an individual death-in-service life insurance arrangement set up and paid for by your employer (your limited company). A Relevant Life Policy must satisfy the statutory conditions set out in HMRC EIM15045. In practice, this typically means the policy is written into a Discretionary Trust, the trust is central to how relevant life policies are structured and taxed, and it should be for the benefit of your family or dependants, never the company or shareholders.
Once your company ceases to trade and is struck off Companies House, it can no longer pay the policy premiums. However, because Relevant Life cover is highly portable, the policy doesn’t have to vanish. You have clear options, but timing is critical.
Why Your Policy Needs Action Before Dissolution
An RLP is a contract between your limited company (as employer/trustee) and the insurance provider. When your company is formally dissolved, it ceases to exist as a legal entity.
If you take no action before strike-off, the policy will lapse due to non-payment of premiums. Worse, once the company is dissolved, executing the required legal Deed of Assignment becomes significantly more complex because there are no remaining company directors legally authorized to sign on behalf of the business.
Option 1: Transfer or Convert the Policy (Insurer-Specific)
What happens to your policy when you leave employment or close the business depends on your specific insurer’s terms, there is no single industry-wide rule. For example, Royal London currently allows trustees to either assign the plan to the employee as a personal plan or have a new company take it over. Aviva‘s current material describes a continuation benefit allowing transfer to a new employer, or alternatively taking out a new personal life policy without further health or lifestyle questions, though this alternative is a new, separate life-only policy that does not carry relevant-life status.
Always check your own policy documents or speak to your insurer to confirm which options apply to your plan.
- Underwriting Terms Vary by Insurer: Some continuation routes avoid fresh medical questions and preserve your existing sum assured and health ratings; others, such as Aviva’s alternative personal policy, are offered without further health or lifestyle questions but as a new, separate contract. Confirm the specific terms with your insurer.
- Trust and Tax Treatment Are Conditional, Not Guaranteed: Where a policy remains properly structured and held in trust, benefits are generally not subject to Income Tax and are not included in your taxable estate for Inheritance Tax purposes, but this depends on the policy and trust meeting the relevant conditions, and is not a blanket guarantee. A policy converted to a standard personal life-only policy will not retain relevant-life tax status.
- Loss of Business Tax Relief: Once a policy moves outside the relevant-life structure and is paid for personally, premiums come from your personal bank account out of post-tax income, and Corporation Tax relief no longer applies.
Note: Deadlines are set individually by each insurer, not by a universal industry rule. For example, Aviva requires its continuation requirements to be completed within 90 days of leaving employment. Confirm the exact deadline that applies to your specific policy and insurer.
Option 2: Assign the Policy to a New Employer or New Company
If you are closing your business to take up a role at another company, or if you are setting up a new limited company structure, you can assign the existing RLP to the new business.
- The new limited company signs a Deed of Assignment (Change of Employer) form provided by the insurer.
- The new business becomes the policy owner and begins paying the monthly premiums directly.
- The policy retains its tax efficiency: premiums remain an allowable expense for Corporation Tax for the new business, with no personal Benefit in Kind (P11D) tax for you.
This transfer must be fully executed by the outgoing company’s directors before the old business is formally wound up.
Option 3: Cancel or Let the Policy Lapse
If you no longer require life cover, for example, if you are retiring, have no remaining financial dependants, or have sufficient personal wealth, you can simply instruct the insurer to cancel the policy.
Because Relevant Life Insurance is pure protection insurance with no investment element or cash surrender value, the policy will end cleanly without cancellation fees or payouts. However, be aware that if you decide to buy life insurance again in the future, it will be subject to fresh medical underwriting at your older age.
What Happens to the Trust When the Company Is Dissolved?
A Relevant Life Policy is normally held inside a Discretionary Trust, and that trust is a separate legal arrangement from the trading company. The trustees, not the company itself, are the legal owners of the policy. When the company is struck off, the trust does not automatically collapse: the trustees remain in place and the policy can, in principle, continue. What actually disappears on dissolution is the premium payer and the employer relationship that gives the plan its relevant-life status. That is why action is needed while the company still exists, rather than after it has gone. If you are a sole director and also the sole trustee, review who else is named on the trust deed, because a surviving trustee may be needed to sign paperwork with the insurer.
Does It Matter Whether You Liquidate or Strike Off?
The route you use to close the company affects how much time you have. A voluntary strike-off (a DS01 application to Companies House) can complete in a couple of months, so the window to assign or convert the policy is short. A members’ voluntary liquidation (MVL) handled by an insolvency practitioner usually takes longer, which can give more room to arrange a Deed of Assignment, but it also introduces a third party whose consent and paperwork you may need. In either case the principle is the same: complete any transfer or conversion before the company is formally removed from the register, because after that there is no company left to act.
What Your Accountant or Insolvency Practitioner Should Flag
When you tell your accountant or insolvency practitioner that the company is closing, the Relevant Life Policy should be treated as a live item on the closing checklist, not an afterthought. Ask them to confirm the final premium date, check that the company direct debit will not be cancelled before any assignment is executed, and note the policy in the closing paperwork so it is not overlooked when the bank account is closed. The insurer, not your accountant, sets the continuation terms, so the practical job is to make sure the deadline is met and the correct deed is signed by an authorised director while the company is still on the register.
Step-by-Step Checklist for Winding Up Your RLP
- Locate Your Policy Schedule & Trust Deed: Check who the named trustees are and identify your policy number.
- Contact Your Broker or Insurer Early: Inform them that the company is entering liquidation or strike-off. Request their specific Relevant Life Continuation / Assignment Deed forms.
- Execute Deeds Prior to Strike-Off: Ensure the existing company directors sign and witness the Deed of Assignment before the company is dissolved at Companies House.
- Update Direct Debits: Transition monthly premium payments seamlessly to your personal account (or new business account) to prevent accidental policy lapse.
Important Policy Information & Risk Warnings
- No Cash-In Value: Relevant life insurance policies are pure protection products. They have no cash-in or surrender value at any time.
- Assignment Timelines Are Insurer-Specific: Each insurer sets its own deadline for converting an RLP to personal cover or a new employer (for example, Aviva requires this within 90 days of leaving employment). There is no single industry-wide window, confirm the applicable deadline with your insurer. Missing it will cause the policy to lapse.
- Tax Laws & Trust Rules: Tax-free status and Corporation Tax treatment rely on HMRC legislation and proper trust execution. Tax rules may change in the future.
This guidance is for general informational purposes only and does not constitute financial, legal, or tax advice. Always consult an FCA-regulated protection specialist or your insolvency practitioner/accountant when winding up a limited company.