What is it?

The aim of the policy is to provide a lump-sum benefit on the death of a single employee. This removes the need for the company to set up a registered group life scheme. The policy is designed to meet the requirements of a single-life relevant life policy under S393B (4) (b) of the Income Tax (Earnings and Pensions) Act 2003.
Relevant life policies are primarily aimed at 2 groups:

• High-earning employees who have substantial pension funds and don’t want their death-in-service benefits to form part of their lifetime allowance.
• Small businesses that don’t have enough eligible employees to warrant a group life scheme.

Relevant life policies can also be used by directors of a company.
Provided the arrangement meets the criteria below, a relevant life policy has a number of advantages.

• The benefit won’t form part of the employee’s lifetime pension allowance.
• The premiums paid won’t form part of the employee’s annual allowance (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme.
• Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.

A terminal illness benefit is available on most contracts. In the event of the employee being diagnosed as suffering from a terminal illness i.e. one where the expectation of life is less than twelve months, the sum assured under the contract will become payable.

Eligibility

The policy must meet the following rules to qualify as a single-person relevant life policy:

• The policy must only provide for a lump-sum death benefit payable before the age of 75.
• No other benefit must be conferred under the policy.
• The policy must not be capable of having a surrender value. There are circumstances in which a small surrender value is allowed.
• Any benefit must only be payable to an individual or a charity.
• The main purpose of the policy must not be tax-avoidance.

Taxation

Premiums paid by employers are not normally assessable on the employees as a benefit-in-kind so they’re not subject to income tax.

The premiums may be treated as an allowable expense for the employer in calculating their tax liability provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.

As the benefits are payable through a discretionary trust, in most cases the benefits are paid free of inheritance tax as the payment is not part of the employee’s estate. But the trust will be subject to normal inheritance tax rules for discretionary trusts, which in some circumstances may give rise to the following charges:

• Up to 6% of the value of the trust fund on each 10th anniversary of the date the trust was established (the periodic charge). A periodic charge will only apply if there is a value held in the trust at the 10th anniversary. This could happen if, for example, an employee dies shortly before the 10th anniversary and the benefits have not been distributed to the beneficiaries.
• Up to 6% of the value of the fund on appointment of benefits out of the trust to a beneficiary (the exit charge).

All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.

Risk considerations

There are a number of risk considerations that need to be taken into account. It is important that you are aware of these.

• This contract is designed to provide a high level of cover at minimal cost and therefore does not acquire a surrender value at any time.
• If for any reason premiums are not paid, cover will cease.
• Failure to disclose any requested or relevant information may adversely affect any future claims.
• At the end of the term selected, cover will cease and no further benefit will be payable.
• The present tax-free treatment of the policy benefits may change.
• If any relevant information provided, when applying, is not disclosed accurately and honestly, this could result in any cover offered becoming invalid and/or may result in the non-payment of any future claims.
• If this policy is to replace any existing policy offering the same type level of cover, the existing policy must not be cancelled until the new policy is in force.

If you think this will be beneficial to you, your company or your charity, please get in touch with one of our team members.

September was a month which saw a number of different factors at play, all of which caused concerns to the investment markets. In no particular order those concerns included:

·        Rising inflation;

·        Stuttering economic growth;

·        More hawkish rhetoric from central banks;

·        Energy prices rapidly increasing; and

·        The ongoing speculation around the Chinese real estate company, Evergrande, which could be on the brink of collapse.

In the UK inflation continues to dominate the investment picture. Having fallen to 2% in July the consumer price index increased to 3.2% in August. A lot of the reasoning for this increase was explained by prices 12 months ago being significantly lower as part of the government’s Eat Out to Help Out scheme. As we will all be aware, gas prices have surged in recent weeks, which is only going to fuel (no pun intended!) inflationary pressures. The Bank of England (BoE) is still expecting a figure of around 4% by the end of the year, but still considers this to be a temporary issue.

Once again, mirroring comments made in the US, the BoE advised that there was no need for immediate action on the increasing inflationary figures. However, the recent prices have probably increased the likelihood of some tightening of monetary policy in the not too distant future. For instance, the BoE have not ruled out interest rates increases this year, and the markets are pricing in an increase as early as February next year.

Growth in the economy still falls way below its pre-pandemic levels. In July the UK economy expanded by 0.1%. The three months to July saw unemployment fall to 4.6% and average wages increase by 6.8% (excluding bonuses). During September the FTSE 100 was down 0.5%.

As with the UK, it appears that the US is edging towards tapering its programme of asset purchases, and this could begin as early as this year. The Federal Reserve (Fed), has pointed towards a strong jobs market, economic growth and temporary inflationary pressures. Like the UK, there is a feeling that interest rates could rise in 2022, when this wasn’t expected until 2023. However, the Fed have indicated this is all dependent on pandemic containment.

In August, the annualised rate of inflation fell slightly to 5.3% from 5.4% in the US. There was some moderation in economic growth prospects for this year, with an expected figure of 5.9% down from 7%. Although this was countered by an increase to 3.8% for 2022, from the previous figure of 3.3%. It is clear that policymakers on both sides of the Atlantic are looking to prepare markets for future tightening of policy measures. September saw the Dow Jones Industrial Average fall by 4.3%.

Following a similar theme, the European Central Bank (ECB) announced it would look to draw back on the Pandemic Emergency Purchase Programme (PEPP). However, they stated that this wouldn’t be until March 2022 at the earliest, which helped to reassure the financial markets. Maybe in a further effort to calm the markets, the ECB President referred to this as recalibrating not tapering.

Meanwhile in Germany, voters went to the polls to determine a successor for Angela Merkel after 16 years in power. As widely predicted, the results of the poll were a coalition government, for which an agreement will need to be reached. The Dax Index was 3.6% down in September.

There will also a change of leadership in Japan, where Prime Minister Yoshihide Suga plans to stand down and be replaced by Fumio Kishida. Second quarter growth in Japan was higher than originally calculated, increasing to 1.9%. The Nikkei 225 Index rose by 4.9% by the end of September.

Fingers crossed the supply issues currently being seen in the UK haven’t impacted on you too much. I did have some difficulties with finding petrol in my local area but thankfully this seems to be easing now.  As always, if you have any queries in regards to any aspect of your financial planning, please do get in touch (link) with myself or one of the team.

We were approached by a company whose Managing Director was about to cease membership of their firm-wide Death-in-Service scheme. He had passed the retirement age of the scheme but was not intending on retiring.

As he was not intending to retire, the company wanted to provide him with the same level of life cover that he was entitled to under the Death in Service scheme. For various reasons he was not able to simply re-join the Death-in-Service scheme as a discretionary member, and the company weren’t prepared to increase the retirement age of the scheme.

We were asked if there was anything we could recommend in this instance. Our recommendation to the company was to take out a relevant life policy to age 75 for when the Managing Director intended to retire. This provided the same level of cover he had under the Death-in-Service scheme.

A relevant life policy had a number of advantages for the company and the Managing Director:

• The benefit won’t form part of the employee’s lifetime pension allowance.
• The premiums paid won’t form part of the employee’s annual allowance (the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief). So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme.
• Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.
• The policy is set up using a discretionary trust, which means the benefits should be free of inheritance tax, and do not form part of the employee’s estate.

In regards to these plans, the company is the owner of the plan, and the individual is the life assured. Due to the age of the client, and the sum assured, there was a requirement by the insurer for medical underwriting. Once this was completed the plan was placed on risk, and the Managing Director now has life cover until he turns 75.

For more details on Relevant Life Policies, please don't hesitate to contact a member of our team.

As the US economy continues to recover at a pace quicker than the US Federal Reserve (Fed) expected, they have indicated they may begin reducing their stimulus packages sooner than previously anticipated. The minutes from the Fed’s July meeting, which were released in August, and Fed Chairs Jerome Powell’s annual speech at the Jackson Hole symposium, both provided strong indications for a tapering of the current stimulus. However, Powell was very keen to emphasise that policymakers would be in no rush to tighten interest rates. In August, The Dow Jones Industrial Average Index rose by 1.2%.

Inflation continues to be a main headline in the US, and Powell used part of his speech to again address these concerns. Once again, he insisted that the inflationary pressures are merely a temporary issue caused by pandemic-related factors. Perhaps backing up his claim, the rate of inflation fell from 0.9% to 0.5%. This was the biggest fall seen in this index for over a year. He did, however, acknowledge that pressure on prices is higher than the Fed would like.

Much like the US, inflation is very much in focus in the UK. The annualised rate of consumer price inflation fell by 0.5% in July to 2%. The Bank of England (BoE) has indicated that inflation could rise as high as 4% by the end of the year. However, like the Fed, the BoE stands by its previous statements that they see these rises as “transitory” and expect the rate to fall back towards their target of 2% during 2022.

The issues that we have seen in regards to supply chain are not helping inflationary pressures in the UK are. Manufacturers are said to be experiencing the worst ever shortage of stock, according to The Confederation of British Industry (CBI).  During the three months up to July, job vacancies reached their highest level at 953,000. Maybe most publically, and certainly not helping the supply chain, has been the reported shortage of HGV drivers currently in the UK. During August, the FTSE 100 Index rose by 1.1%.

Japan managed to host the delayed Olympic Games during August, which were seen largely as a success. However, these took place against a backdrop of a country still battling Covid-19, and in particular, the Delta variant. There are concerns on how this is affecting the ability for continued economic growth, whilst the country is still under a state of emergency. In August, the Nikkei 225 Index increased by 3%.

At the risk of sounding like a broken record, Germany’s inflation rate rose to levels not seen since 2008 in August. The annualised increase of 3.4% was well above the European Central Bank’s 2% target. The second quarter saw a revised quarter on quarter growth estimate of 1.6%, helping to show Germany’s economic growth continues to rebound in 2021. Elsewhere in Europe, and showing that it’s not just an isolated problem for the UK, there have been supply chain disruptions. The German Dax Index rose by 1.9% by the end of August.

I very much hope that as the lockdown restrictions have relaxed in the UK, you have been able to take advantage of this over the summer. As always, if you have any queries in regards to any aspect of your financial planning, please do get in touch with myself or one of the team.