In 2025, intelligent tax planning is about more than cutting costs — it’s about structuring your financial world efficiently, aligning your personal and business finances so every pound works twice as hard. For limited company directors, this means using the company as a legitimate vehicle to fund not only operations but also protection, wealth creation, and succession planning.

Among the tools available, Relevant Life Insurance stands out. It bridges the gap between personal financial security and corporate efficiency, offering directors a way to protect their families while reducing the company’s tax bill.

At Willow Private Finance, we often describe it as “the director’s life cover that pays for itself” — because when structured correctly, Relevant Life can reduce corporation tax, eliminate benefit-in-kind charges, and bypass inheritance tax altogether.

Yet its benefits extend far beyond annual tax relief. Relevant Life plays a meaningful role in long-term wealth planning, remuneration strategy, and estate protection, making it an essential piece of the director’s financial puzzle in 2025.

To explore the wider context of business protection, you might also read Relevant Life Insurance vs Death in Service: What’s Best in 2025? .

The Tax Landscape in 2025

The UK tax environment has grown more complex over recent years. Corporation tax now varies based on profit levels, dividend tax remains elevated compared to pre-2022 rates, and HMRC has tightened oversight on director remuneration and expense claims.

As a result, company owners are increasingly searching for legitimate, HMRC-approved methods of extracting value without triggering avoidable liabilities. Pension contributions, electric company cars, and employer-funded life insurance all play a part in that strategy — but it’s Relevant Life that remains one of the most straightforward, compliant, and impactful solutions.

The reason is simple: the policy delivers a personal benefit to the director’s family, yet it’s paid for by the business and deductible for corporation tax. It’s rare for a financial product to sit so neatly between the two worlds of personal protection and corporate planning.

How Relevant Life Works in Practice

A Relevant Life policy is a company-funded life insurance plan designed for employees or directors. The company pays the premium, but instead of benefiting from the policy, it sets it up under a discretionary trust for the director’s beneficiaries — typically a spouse or children.

If the director dies or is diagnosed with a terminal illness, the insurer pays out a lump sum to the trust, which is then distributed to the family tax-free.

From an accounting perspective, the company treats the premium as a business expense. It reduces corporation tax and does not count as a benefit-in-kind, meaning there’s no income tax or National Insurance charge for the director.

In essence, the director achieves what every business owner seeks — personal protection funded with pre-tax money, wrapped in a structure that ensures no inheritance tax on payout.

The Long-Term Tax Advantages

Most directors understand the immediate benefit: reduced corporation tax and no personal tax on premiums. But the long-term advantages are even more valuable.

1. Compound Corporation Tax Savings

Each annual premium reduces taxable profit. Over the lifetime of the policy, that’s a compounding benefit — particularly for directors maintaining cover for 10 or more years.

2. No Benefit-in-Kind

Unlike other company-paid perks, Relevant Life doesn’t appear on a P11D form, meaning there’s no erosion of personal income or additional liability.

3. Inheritance Tax Efficiency

Because the policy sits in trust, the payout falls outside the director’s estate. This ensures family wealth is protected from inheritance tax — an increasingly important consideration for high-net-worth individuals whose estates may exceed the nil-rate band.

4. Seamless Integration with Pension and Succession Planning

Relevant Life policies complement director pensions beautifully. Both use company funds, both are tax-deductible, and both create long-term security. When used together, they form a strategic blend of protection and retirement planning — the foundation of smart corporate financial design.

At Willow, we often structure Relevant Life as part of a three-part framework: pension for long-term savings, Relevant Life for family protection, and Key Person or Shareholder Protection for business continuity.

Aligning Relevant Life with Director Remuneration

For most small business directors, the biggest challenge is balancing salary, dividends, and benefits. The aim is to take enough salary to remain compliant, enough dividends to stay efficient, and enough protection to ensure dependents are secure.

Relevant Life simplifies that equation. Instead of withdrawing funds to pay for personal life insurance — which would trigger both income tax and dividend tax — the company simply pays the premium directly.

This effectively converts what would have been personal post-tax expenditure into a corporate pre-tax expense. Over time, that structural efficiency compounds.

It also makes director compensation packages more attractive in multi-director companies. Each director can hold their own Relevant Life policy, ensuring equal protection without distorting the business’s payroll or ownership structure.

Integrating Relevant Life into Estate Planning

Estate planning isn’t only about wills and property — it’s about ensuring liquidity at the right time, for the right people, in the most efficient way.

Without careful structuring, life insurance payouts can form part of the deceased’s estate, exposing them to inheritance tax at 40%. A £1 million payout, for instance, could lose £400,000 to tax if handled incorrectly.

Relevant Life avoids this entirely. The use of a discretionary trust ensures the payout bypasses probate, is distributed quickly, and remains outside the taxable estate. This makes it a natural fit for estate plans that already use trusts and gifting to reduce future liabilities.

It’s particularly powerful for directors whose main wealth is tied up in illiquid assets — such as property or company shares — providing the family with instant access to tax-free capital.

Common Pitfalls Directors Should Avoid

Despite its simplicity, Relevant Life can be misused if not structured correctly. Common errors include:

• Omitting the trust document — without the trust, inheritance tax advantages are lost.
• Incorrect ownership — the company, not the director, must own and pay for the policy.
• Lapsed reviews — failing to update cover as income or family needs change can leave gaps.

Another mistake is assuming that Relevant Life replaces other business protection policies. It doesn’t. It protects the family, not the company. For full coverage, it should sit alongside Key Person or Shareholder Protection to ensure the business itself remains secure.

At Willow Private Finance, we ensure every policy is correctly established, aligned with HMRC requirements, and reviewed regularly as both the business and personal circumstances evolve.

The 2025 Outlook for Directors

The year ahead will continue to test company directors to balance profitability with personal financial security.

As corporation tax rates remain tiered and dividend allowances tighten further, the strategic value of employer-funded benefits will only grow. Relevant Life’s unique ability to straddle both corporate efficiency and personal wealth protection positions it as one of the most enduring tools in the modern director’s arsenal.

In 2025 and beyond, the smartest directors won’t just be buying life insurance — they’ll be using it as an active part of their tax strategy.

How Willow Private Finance Can Help

At Willow Private Finance, we work with directors, professionals, and entrepreneurs to structure their protection as part of a broader tax and wealth plan. Our advisers assess your income, company structure, and family goals to determine how policies like Relevant Life, Key Person Insurance, and pension contributions can work in synergy.

We liaise with accountants and legal advisers to ensure every arrangement is compliant and optimised. Whether you’re reviewing an existing plan or setting up cover for the first time, we’ll ensure your policy isn’t just suitable — it’s strategic.

Frequently Asked Questions

Q1: Can Relevant Life be part of a wider tax plan?
A: Absolutely. It complements pensions, remuneration, and estate planning — providing tax-deductible personal cover that supports long-term wealth strategy.

Q2: Is Relevant Life Insurance suitable for one-person companies?
A: Yes. Even sole directors can qualify, provided the company is UK-registered and the director is classed as an employee.

Q3: Does the payout affect inheritance tax?
A: No, provided it’s written under trust. The proceeds are outside the estate and pass tax-free to beneficiaries.

Q4: Can Relevant Life premiums reduce corporation tax?
A: Yes, most insurers confirm they qualify as allowable business expenses under HMRC’s “wholly and exclusively” rule.



Q5: What happens if I retire or close my business?
A: You can often transfer the policy to a new employer or convert it into personal cover, maintaining continuity of protection.

📞 Want Help Navigating Today’s Market?

Book a free strategy call with one of our mortgage and protection specialists.

We’ll help you find the smartest way forward—whatever rates or tax rules do next.