1. The one man/woman band:
If you are the sole owner of a business, generally speaking when you die, your business dies. You have a policy for the value of your business in trust to your beneficiaries. That way, if the worst happens, you pass on the value of your business.
A Relevant life policy is a standalone death in service policy whereby the whole of the premium is a legitimate business expense and doesn’t count as a P11D benefit in kind as long as you are a 1 person limited company (It’s about separate legal entities). You can have up to 20x income (including dividends and P11D benefits and also from sources other than the company paying for the policy) up to a maximum of £20M with certain providers, the proceeds are non taxable and do not form part of your estate upon death asthey are written into a Relevant Life Trust.
2. Multiple shareholders:
Two people own 50% each of a business worth £1,000,000. One dies and leaves his 50% shares to his/her wife/husband. The partner knows nothing about the business, you don’t even get on and have no desire to run a business together. What the deceased partner
really wanted was the monetary value of his shares to go to his beneficiaries.
Solution: Both owners have a life policy for the value of their shares which pay out into a flexible business trust of which they are both trustees. They have a cross option agreement in place which means that if EITHER the remaining partner says they want to buy back the shares OR the beneficiary says they want to sell the deal has to happen. They don’t have to agree. This way the cash is there, the shares can be bought, the beneficiary gets what the deceased partner wanted them to get, the monetary value of the shares. The remaining partner gets the shares. No money needs to be raised (i.e. no visit to the bank) and the business and beneficiary can then get on with business and life. This can work for any number of partners and can also be done on a Critical Illness cover basis.