Shorts - Chartered Financial Planners

Protection

Rob Sully
Protection for yourself and your business against the unexpected.Rob Sully
Protection for key individuals within a business is something that can often easily be overlooked. However, ask yourself how your business would respond if:
  • You or your business partner were too ill to work or died suddenly, or
  • A key employee was diagnosed with a critical illness or died?

In these circumstances it is important to consider who would be in control of your business and what impact this could have on future profits and the businesses’ overall valuation.

Shareholder Protection

Without the capital to buy the shares, you could find yourself working with whoever inherits them, or with anyone they decide to sell them to. Either way, if they had a majority shareholding it could mean an unknown boss calling the shots.

By putting shareholder protection in place, you could make sure the business gets the funds to buy back the shares from a critically ill partner or their estate, which benefits everyone:

  • The remaining partners keep control of their business
  • The affected partner or their estate gets fair value for selling their share of the business; and
  • Using an appropriate agreement can make sure any transactions are tax efficient.

Key Person Insurance

Many small businesses rely on a few key individuals who occupy a number of roles within the organisation. The loss of any one of those individuals could pose a real threat to the financial stability of their business. Taking out Key person protection provides capital (depending on the cover selected) in the event of a key person being diagnosed with a specified critical illness or dies. This cash could give a vital lifeline to pay loans, ease cash flow and fund training and recruitment of replacement staff members. We will help you identify your individual protection needs and guide you through the various types of cover available to make sure you get the right cover at the right price.

Relevant Life Policies

If you own a small business there’s a brighter way to buy life insurance for yourself and your key employees. With a relevant life policy, the business makes the life cover payments not the person who is covered. This means that you won’t pay any national insurance contributions or income tax on the premiums, but you still get the benefits of corporation tax relief; that all adds up to big tax savings.

Protection Relevant-Life-Policy-table-from-FS3

* Assumes that corporation tax relief at 20% has been granted under the ‘wholly and exclusively’ rules.  In both cases we’ve assumed a payment at £1,000 each year for the life cover on an employee who’s paying tax at 40% and employee’s National Insurance at 2% on the top end of income.  We’ve also assumed that the employer is paying corporation tax at the small profits rate of 20% and will pay employer’s National Insurance at the contracted-in rate of 13.8%.  Current tax rates applying for tax year 2015/16, the levels, bases and relief of taxation may be subject to future change.

 

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