WHILE nobody delights in dwelling on their own demise, property investors protective of the welfare of their families can ill-afford to ignore what happens to their finances “post-portfolio”.
Given the fiscal gains of gearing, many “private landlords” in the buy-to-let business carry relatively large levels of borrowing, which demands the protection of life insurance to ensure repayment of outstanding mortgages and the preservation of future income for loved ones in the event of death.
Securing such a financial safety net does not come cheap, with ample cover – often in excess of the £1 million mark rather than the tens or hundreds of thousands – attracting hefty premiums.
And although high-priced policies might be viewed as an “occupational hazard” in the eyes of fledgling property magnates, it is not by Her Majesty’s Revenue and Customs. Regardless of whether proceeds are intended to repay mortgages, life insurance premiums are not deductible against rental incomes or capital gains.
Fortunately, for the growing number of those managing a portfolio of buy-to-lets through a limited company, there is a means of making life cover’s costs and rewards a more tax-efficient proposition.
Rather than personally swallow the sizeable premiums associated with individual plans, company owners can opt to set up a Relevant Life Policy (RLP) for themselves – and any employees – and have the business pay for cover.
Doing so means the cost of the insurance becomes a tax-deductible business expense and allows for proceeds to be paid into a discretionary trust to the insured’s family or financial dependents tax free.
A good fit for buy-to-let entrepreneurs seeking to protect their investment in their estate and reduce the burden on their taxed income, RLPs also offer small companies the advantage of not attracting any Benefit in Kind National Insurance on the provision.
As ever with financial products, however, one provider rarely fits all and those contemplating any change in cover should seek expert advice. With a proven pedigree in all aspects of property investment, Charles Louis Mortgage Advisers can provide landlords with such guidance and also offer considered counsel as to the full spectrum of pros and cons of forming a limited company as part of their property masterplan.
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