Business protection tools

Sole trader – ownership protection

Consider:

• An own-life protection plan, to protect your self-employed client’s dependants in the event of their death or critical illness.
• Writing the plan under a Split Trust to avoid probate delay and ensure any claim proceeds are paid in an Inheritance Tax efficient manner.

Download Business Protection guide

For more information download our guide

Sole trader – key person

Where the life assured is a key employee, consider:

• A life-of-another plan, owned by your self-employed client on the life of their employee.
• If the term of the plan is for a maximum of 5 years and it is not for loan protection, the premiums may be deductible as a trading expense. If so, claim proceeds will be taxed as a trading receipt.

Download Business Protection guide

For more information download our guide

Where the life assured is your self-employed client, consider:

• An own-life protection plan, to protect your self-employed client’s dependants in the event of their death or critical illness.
• Writing the plan under a Split Trust to avoid probate delay and ensure any claim proceeds are paid in an Inheritance Tax efficient manner.

Download Business Protection guide

For more information download our guide

Sole trader – loan protection

Where the life assured is a key employee, consider:

• A life-of-another plan, owned by your self-employed client on the life of their employee.
• Whether the lender may require the plan to be assigned to them.
• As the plan is for loan protection, the premiums should not be deductible as a trading expense. The claim proceeds should not be taxed as a trading receipt.

Download Business Protection guide

For more information download our guide

Where the life assured is your self-employed client, consider:

• An own-life protection plan, to protect your self-employed client’s dependants in the event of their death or critical illness.
• Writing the plan under a Split Trust to avoid probate delay and ensure any claim proceeds are paid in an Inheritance Tax efficient manner.
• Whether the lender may require the plan to be assigned to them. If so, the plan should not be written in trust.

Download Business Protection guide

For more information download our guide

Sole trader – death in service

Where the life assured is an employee, consider:

• A life-of-another Self Assurance business plan, owned by the employer on the life of the employee.
• If the plan only includes Death Benefit and is written under a Relevant Life Policy Trust from commencement, it may qualify as a tax efficient relevant life policy.

NOTE: Self employed persons are not eligible for relevant life policies on their own lives. They could consider an own-life protection plan to protect their dependants in the event of their death. The plan could be written under a Split Trust to avoid probate delay and ensure any claim proceeds are paid in an Inheritance Tax efficient manner.

Download Relevant Life Policies guide

For more information download our guide

Partnerships – ownership protection

Consider:

Own-life plans under Business Trusts

• An own-life plan for each partner, with each plan being written under its own Business Trust from commencement.

Summary:

• Is the partnership agreement compatible with the protection arrangement? It may need to be amended, or if there is no agreement, an agreement put in place.
• A cross option agreement can be prepared to set out how the interests will be valued and give the partners options to buy and sell interests in the business.
• Equalising premiums to remove inequalities due to age or differences in ownership share reinforces the commerciality of the arrangement. This can be important for Inheritance Tax reasons.

Life-of-another plans

• Each partner can effect a plan on each co-owner. Any claim proceeds will be paid directly to the partner who owns the plan.

Summary:

• Cover should not be arranged in this way if the business has more than three partners or if the ownership of the business may change in the future.
• Is the partnership agreement compatible with the protection arrangement? It may need to be amended, or if there is no agreement, an agreement put in place.
• A cross option agreement can be prepared to set out how the interests will be valued and give the partners options to buy and sell interests in the business.

Automatic accrual

• The partnership agreement may provide for automatic accrual, where the partnership interest of a partner automatically transfers to the surviving co-partners upon death. The partners can each effect own-life plans written under a Split Trust for the benefit of their families, as they will not receive payment from the surviving partners.

Please note

• Premiums for ownership protection will usually be paid from the partners’ post-tax income. They will not be deductible as a trading expense of the business.

Download Business Protection guide

For more information download our guide

Partnership – key person

Where the life assured is a key employee, consider:

• A life-of-another plan, proposed by one of the partners on the life of their employee and written under a Business Trust for the benefit of the partners.
• If the term of the plan is for a maximum of 5 years and it is not for loan protection, the premiums may be deductible as a trading expense. If so, claim proceeds will be taxed as a trading receipt.

Where the life assured is a partner in the business, consider:

• An own-life protection plan written under a Business Trust from commencement for the benefit of the co-partners. Key person cover can be combined with an ownership protection plan established in this way.
• Life-of-another plans, owned by the other partners. Key person cover can be combined with ownership protection plans established in this way. This method should not be used for businesses with more than 3 partners or if the ownership of the business may change in the future.
• The premiums will not be deductible as a trading expense of the business.

Download Business Protection guide

For more information download our guide

Partnership – loan protection

Where the life assured is a key employee, consider:

• A life-of-another plan, proposed by one of the partners on the life of their employee and written under a Business Trust for the benefit of the partners.
• Whether the lender may require the plan to be assigned to them. If required, the plan would be assigned to the lender instead of being written in trust.
• As the plan is for loan protection, the premiums should not be deductible as a trading expense. If so, the claim proceeds should not be taxed as a trading receipt.

Where the life assured is a partner in the business, consider:

• An own-life protection plan written under a Business Trust from commencement for the benefit of the co-partners.
• Life-of-another plans, owned by the other partners. This method should not be used for businesses with more than 3 partners or if the ownership of the business may change in the future.
• Whether the lender may require the plan to be assigned to them. If so, the plan should not be written in trust.
• The premiums will not be deductible as a trading expense of the business.

Download Business Protection guide

For more information download our guide

Partnerships – death in service

Where the life assured is an employee, consider:

• A life-of-another Self Assurance business plan, owned by the employer on the life of the employee.
• If the plan only includes Death Benefit and is written under a Relevant Life Policy Trust from commencement, it may qualify as a tax efficient relevant life policy.

NOTE: Equity partners are not eligible for relevant life policies on their own lives. They could each consider an own-life protection plan to protect their dependants in the event of their death. The plan could be written under a Split Trust to avoid probate delay and ensure any claim proceeds are paid in an Inheritance Tax efficient manner.

Download Relevant Life Policies guide

For more information download our guide

Limited liability partnership – ownership protection

Consider:

Own-life plans under Business Trusts

• An own-life plan for each member, with each plan being written under its own Business Trust from commencement.

Summary:

• Is the LLP agreement compatible with the protection arrangement? It may need to be amended, or an agreement put in place.
• A cross option agreement can be prepared to set out how the interests will be valued and give the members options to buy and sell interests in the business.
• Equalising premiums to remove inequalities due to age or differences in ownership share reinforces the commerciality of the arrangement. This can be important for Inheritance Tax reasons.

Life-of-another plans

• Each member can effect a plan on each co-owner. Any claim proceeds will be paid directly to the member who owns the plan.

Summary:

• Cover should not be arranged in this way if the business has more than three members or if the ownership of the business may change in the future.
• Is the LLP agreement compatible with the protection arrangement? It may need to be amended, or an agreement put in place.
• A cross option agreement can be prepared to set out how the interests will be valued and give the members options to buy and sell interests in the business.

Tax

• Premiums for ownership protection will usually be paid from the members’ post-tax income. They will not be deductible as a trading expense of the business.

Download Business Protection guide

For more information download our guide

Limited liability partnership – key person

Where the life assured is a key employee, consider:

• A life-of-another plan, owned by the LLP on the life of its employee.
• If the term of the plan is for a maximum of 5 years and it is not for loan protection, the premiums may be deductible as a trading expense. If so, claim proceeds will be taxed as a trading receipt.

Where the life assured is a member, consider:

• An own-life protection plan written under a Business Trust from commencement for the benefit of the co-members. Key person cover can be combined with an ownership protection plan established in this way.
• Life-of-another plans, owned by the other members. Key person cover can be combined with ownership protection plans established in this way. This method should not be used for businesses with more than 3 partners or if the ownership of the business may change in the future.
• Life-of-another plans, owned by the LLP on the life of each member.
• The premiums will not be deductible as a trading expense of the business

Download Business Protection guide

For more information download our guide

Limited liability partnership – loan protection

Where the life assured is a key employee, consider:

• A life-of-another plan, owned by the LLP on the life of its employee.
• Whether the lender may require the plan to be assigned to them.
• As the plan is for loan protection, the premiums should not be deductible as a trading expense. If so, the claim proceeds should not be taxed as a trading receipt.

Where the life assured is a member, consider:

• An own-life protection plan written under a Business Trust from commencement for the benefit of the co-members.
• Life-of-another plans, owned by the other members. This method should not be used for businesses with more than 3 partners or if the ownership of the business may change in the future.
• Life-of-another plans, owned by the LLP on the life of each member.
• Whether the lender may require the plan to be assigned to them. If so, the plan should not be written in trust.
• The premiums will not be deductible as a trading expense of the business

Download Business Protection guide

For more information download our guide

Limited liability partnership - death in service

Where the life assured is an employee, consider:

• A life-of-another Self Assurance business plan, owned by the LLP on the life of the employee.
• If the plan only includes Death Benefit and is written under a Relevant Life Policy Trust from commencement, it may qualify as a tax efficient relevant life policy.

NOTE: members are not eligible for relevant life policies on their own lives. They could each consider an own-life protection plan to protect their dependants in the event of their death. The plan could be written under a Split Trust to avoid probate delay and ensure any claim proceeds are paid in an Inheritance Tax efficient manner.

Download Relevant Life Policies guide

For more information download our guide

Limited company – ownership protection

Consider:

Own-life plans under Business Trusts

• An own-life plan for each shareholder, with each plan being written under its own Business Trust from commencement.

Summary:

• Are the articles of association/any shareholder agreements compatible with the protection arrangement? They may need to be amended, or if there is no agreement, an agreement put in place.
• A cross option agreement can be prepared to set out how the shares will be valued and give the shareholders options to buy and sell the shares in the business.
• Equalising premiums to remove inequalities due to age or differences in ownership share reinforces the commerciality of the arrangement. This can be important for Inheritance Tax reasons.

Tax:

• Premiums can be paid from the shareholders’ post-tax income.
• If the company pays and does not re-charge the cost to the shareholder, the premiums will be assessable for Income Tax and National Insurance contributions (unless the payment represents re-payment of a director’s loan account).

Company share purchase

• The company effects a plan on the life of each shareholder to the value of their shareholding. In the event of a shareholder’s death or critical illness, the company purchases the shareholder’s shares, which are then cancelled and revert to un-issued share capital.
• For cover to be effected in this way:
  - The articles of association must allow the company to purchase its own shares
  - The requirements for company share purchase under the Companies Act 2006 must be met
• The shares should have been owned by the shareholders for at least 5 years prior to sale or 3 years for a sale by their personal representatives. If less, there may be a substantial Income Tax liability for the shareholders or their estates on death.

Summary:

• Do the articles of association permit company share purchase? If not, they must either be amended or cover effected in a different way.
• A cross option agreement can be prepared to set out how the shares will be valued and to give the company options to buy and the shareholders/their estates options to sell the shares in the business.
• Consider the requirements for company share purchase under the Companies Act 2006 see page 48 of our Business Protection guide

Tax:

• The company will pay the premiums, which will not be deductible as a trading expense. The premiums will not be subject to Income Tax or National Insurance.

Life-of-another plans

Summary:

• Cover should not be arranged in this way if the business has more than three shareholders or if the ownership of the business may change in the future.
• Are the articles of association/any shareholder agreements compatible with the protection arrangement? They may need to be amended, or an agreement put in place.
• A cross option agreement can be prepared to set out how the shares will be valued and give the shareholders options to buy and sell the shares in the business.

Tax:

• Premiums can be paid from the shareholders’ post-tax income.
• If the company pays and does not re-charge the cost to the shareholder, the premiums will be assessable for Income Tax and National Insurance contributions (unless the payment represents re-payment of a director’s loan account).

Download Business Protection guide

For more information download our guide

Limited company – key person

Where the life assured is a key employee, consider:

• A life-of-another plan, owned by the company on the life of its employee.
• If the term of the plan is for a maximum of 5 years and it is not for loan protection, the premiums may be deductible as a trading expense. If so, claim proceeds will be taxed as a trading receipt.

Where the life assured is a shareholding director in the business, consider:

• An own-life protection plan written under a Business Trust from commencement for the benefit of the co-owners. Key person cover can be combined with an ownership protection plan established in this way. Premiums can be paid from the shareholders' post-tax income. If the company pays and does not re-charge the cost to the shareholder, the premiums will be assessable for Income Tax and National Insurance contributions (unless the payment represents re-payment of a director's loan account).
• Life-of-another plans, owned by the company. Key person cover can be combined with company share purchase ownership protection plans established in this way.
• The premiums will not be deductible as a trading expense of the business.

Download Business Protection guide

For more information download our guide

Limited company – loan protection

Where the life assured is a key employee, consider:

• A life-of-another plan, owned by the company on the life of its employee.
• Whether the lender may require the plan to be assigned to them.
• As the plan is for loan protection, the premiums should not be deductible as a trading expense. If so, the claim proceeds should not be taxed as a trading receipt.

Where the life assured is a shareholding director in the business, consider:

• An own-life protection plan written under a Business Trust from commencement for the benefit of the co-owners. Key person cover can be combined with an ownership protection plan established in this way.
• Life-of another plans, owned by the company. Key person cover can be combined with company share purchase ownership protection plans established in this way. Premiums can be paid from the shareholders' post-tax income. If the company pays and does not re-charge the cost to the shareholder, the premiums will be assessable for Income Tax and National Insurance contributions (unless the payment represents re-payment of a director's loan account).
• If the plan is for loan protection, the lender may require the plan to be assigned to them. If so, the plan should not be written in trust.
• The premiums will not be deductible as a trading expense of the business.

Download Business Protection guide

For more information download our guide

Limited company - death in service

Consider:

• A life-of-another Self Assurance business plan, owned by the company on the life of an employee or director.
• If the plan only includes Death Benefit and is written under a Relevant Life Policy trust from commencement, it may qualify as a tax efficient relevant life policy.

Download Relevant Life Policies guide

For more information download our guide