How UK Buy-to-Let Landlords can save tax by taking out Relevant Life Insurance

Investing in Buy-to-Let (BTL) properties can be a very profitable venture, but it also comes with financial responsibilities, including taxes. As a BTL Landlord, you may be looking for ways to maximize your profits and minimize your tax liabilities. You may also be looking for ways to ensure the financial protection of your family in case of your death. One often-overlooked strategy for this is taking out a Relevant Life policy.

Understanding Relevant Life Insurance

Relevant Life insurance is a cost-effective way to set up individual death-in-service (life insurance) benefits for employees in companies which are too small to consider setting up full group protection schemes. It can also be a smart tool for individuals, particularly Buy-to-Let (BTL) landlords.

If you have established a UK company in your name and are receiving a salary from your business, you may wish to consider a Relevant Life plan. The bonus here is that the plan is usually viewed as an allowable business expense by HMRC, therefore all premiums and paid benefits qualify for full Income Tax relief, National Insurance relief and Corporation Tax relief. This means that your insurance premiums may be reduced by up to 49% compared to a typical life policy, if you are classed as a higher rate taxpayer.

It is important to note that your Relevant Life plan will be owned by your Limited Company, and the plan will be written into a Discretionary Trust from the outset. This means that the policy will benefit you and your family. Our Specialists at Visionary Finance can assist you with the legislative requirements to ensure your Relevant Life plan is arranged the way it should be.

Relevant Life Insurance for Buy-to-Let Landlords

Now that we understand the basics of Relevant Life insurance, let us explore how BTL Landlords can use this tool to their advantage.

Treating your Buy-to-Let Properties as a Business

To benefit from Relevant Life Insurance, it is important to establish your buy-to-let activities as a business. You can do this by setting up a UK Limited Company and ensure that you receive a salary from your business.

Premium as a Business Expense

Once you have set up your business, you can get Life Cover as a BTL Landlord and treat your monthly insurance premium (which would be paid for from your business bank account) as a business expense. You can deduct the premium amount from your rental income before calculating your taxable profit. If you have an accountant, they will have the expertise to assist you with this process.

Inheritance Tax (IHT) Benefits

As mentioned above, your Relevant Life policy will be placed in trust, which means that the payout won’t be subject to an Inheritance Tax liability for your family. This can be especially beneficial for Landlords looking to pass on their properties to their heirs, mortgage-free. This can help preserve your wealth and ensure your loved ones receive the full benefit of your property investments. Please note that calculating your inheritance tax liability can be a complex process and therefore should you require professional advice regarding your Inheritance Tax liability, our Specialists at Visionary Finance can refer you to our trusted Estate Planning partners.

Considerations for Relevant Life Insurance

Whilst Relevant Life Insurance can offer significant tax benefits, it is essential to consider a few additional factors:

Premium Costs

The premium cost of such a policy depends on factors like your age, health, lifestyle factors (such as smoker status, hobbies/sport activities) and the level of coverage you choose. The amount of cover selected on a Relevant Life plan is based on the lost income of an employee and the maximum amount of cover available usually depends on overall remuneration, which includes salary, bonuses, benefits in kind and regular dividends from the shares of your company.

Policy Types

The Life Insurance market is huge, and each type has its own advantages and disadvantages. The choice of policy type can impact the cost and benefits of your Relevant Life Insurance.

Always Seek Professional Advice

Given the complexities of Relevant Life legislative requirements, we strongly advise you to seek assistance from a reliable Life Insurance Broker in the UK. You can always reach out to our experts at Visionary Finance. We can help you find an appropriate Relevant Life Insurance policy that aligns with your financial goals and tax-efficiency objectives.