Tax year: 2026/27 | Last reviewed: 2 October 2026
Most directors want life cover to protect their family or mortgage. Paid personally, the premiums come out of income that has already been taxed. A relevant life policy lets your limited company pay instead, with tax relief for the company and no benefit in kind for you.
What is a relevant life policy?
It is a death-in-service life insurance policy taken out by an employer for an individual employee or director. The payout goes to the employee’s family or other beneficiaries through a trust, not to the company. It is designed for small businesses that are too small for a group life scheme.
The tax treatment
- Company: premiums are usually deductible for corporation tax, provided they are wholly and exclusively for the purposes of the trade.
- Director or employee: no benefit in kind, no income tax and no NI on the premiums.
- Payout: normally free of income tax and, because it is paid into a trust, usually outside the director’s estate for inheritance tax.
- Pensions: premiums do not count towards your pension annual allowance or lifetime limits.
Example
A higher rate director wants cover costing £1,200 a year.
- Paid personally from dividends: the company needs to pay a dividend of about £1,868 for the director to have £1,200 after 35.75% dividend tax. That dividend comes from profits that have already borne corporation tax, so the company needs roughly £2,300 of pre-tax profit at 19%.
- Relevant life policy: the company pays £1,200, saving £228 of corporation tax at 19% (or £318 in the marginal band). The net cost is under £1,000.
That is a saving of over 50% on the true cost of the cover.
Rules to be aware of
- The policy must only provide a lump sum on death or terminal illness before age 75. It cannot have a surrender value.
- Beneficiaries must be individuals or a charity, not the company or a business partner.
- It is not suitable for business protection such as key person or shareholder protection, which are separate policies.
- Cover levels are usually limited to a multiple of total remuneration, including dividends in some cases. Insurers set their own limits.
- HMRC can deny the corporation tax deduction if the premium is not for the purposes of the trade, for example where the person is a shareholder but not genuinely working in the business.
Who it suits
Relevant life cover is ideal for directors of small limited companies, especially sole director companies, and for key employees where you want to offer a valuable benefit without the cost of a group scheme. Combined with employer pension contributions and other tax-efficient benefits, it forms part of a strong remuneration package.
FAQs
Is relevant life cover a P11D benefit?
No. A qualifying relevant life policy is exempt from benefit in kind.
Can a sole trader have a relevant life policy?
No. You need to be an employee, which includes directors of a limited company. Sole traders and partners buy personal cover.
Who sets it up?
Policies are arranged through a regulated financial adviser or insurer. We are happy to work with your adviser.
Talk it through with Digivolve
We work alongside independent financial advisers to make sure a relevant life policy is set up so the tax treatment works.
This article is general information based on the rules for the 2026/27 tax year as at October 2026. It is not personal tax advice. Rates and thresholds can change, so please speak to us before acting.