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Key protection against the risk of financial consequences to your business

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Key Person Cover

This is protection against the financial consequences to a business that would otherwise result from the death or serious illness of someone who (normally) is employed by the business. Effectively, it is loss of profits insurance.

The value of pensions and the income they produce can fall as well as rise, you may get back less than you invested.

KEY PERSON COVER

A key person could be defined as “anyone with specialist skills or knowledge, or with particularly important areas of responsibility, whose loss to a business would adversely effect its profitability”.

Such a person cannot easily or quickly be replaced and, whilst it is said that no one is irreplaceable, a business can suffer significantly during the time that it takes to find that replacement.

Key person cover is designed to give businesses a cash injection in order that profits are effectively maintained while the best replacement is found.

HOW MUCH COVER SHOULD BE PROVIDED?

A business needs to consider how much the loss of profits would be if the key person died or suffered a serious illness. They should also think about including costs such as, recruitment, training, and loss of goodwill.

They should also consider how long the cover needs to be in place for. How long will it realistically take to find a replacement?

Traditionally, a multiple of salary method has been used when deciding on the necessary amount of cover for a keyperson. This relies on two assumptions: firstly, that it will take the business a number of years to recover and, secondly, that the keyperson’s salary in some way reflects their impact on profits.

Between two and ten times salary is a guideline, so if the key person’s salary is £30,000 p.a. and the company believe that it will take five years to recover its position, then a sum assured of £150,000 is needed.

EXAMPLE OF KEY PERSON COVER

Company A’s gross profits= £5,000,000 p.a.

Company A’s total wage bill= £1,000,000 p.a.

The keyperson’s salary= £30,000 p.a.

Multiply the profits by the keyperson’s salary and divide the figure by the total wage bill:

(£5,000,000 x £30,000) ÷ £1,000,000 = £150,000

If this cover needs to be in place for 5 years, then our sum assured would be £150,000 x 5 = £750,000

WHAT SHOULD THE TERM OF THE PLAN BE?

This depends on the business and the keyperson. Term assurance plans would be more suitable where:

Tax relief on the contributions is required.

  • The keyperson may not remain key in the future.
  • The keyperson is working on a project.
  • The keyperson will be key through to their retirement.
  • The keyperson may not stay in the business long term.

It is not uncommon for short term plans of say five years to be set up on a renewable basis.

A whole of life plan may be more suitable if the keyperson is an owner of the business.

HOW SHOULD THE PLAN BE SET UP?

Whether its life cover, critical illness cover or permanent health insurance that is needed on the key person, it is the business that will want to receive, and therefore control, the benefits. Key person plans are therefore set up on a life of another basis.

WHAT ABOUT UNDERWRITING?

As with all life of other plans, insurable interest will need to be shown. The business will need to be able to demonstrate that the level of cover is reasonable in relation to the contribution that the key person makes to the profits of the business.

WHAT IS THE TAX SITUATION?

If a term plan has been affected, then HMRC may allow the company to obtain tax relief on the contributions if:

  • There is an employer/employee relationship between the life assured and plan owner.
  • The plan is to meet loss of profits only.
  • The plan’s term is no more than 5 year
  • The proceeds of any plan that has obtained tax relief on the contributions will be taxable as a trading receipt.

We advise businesses taking out any form of key person insurance to speak to their local Inspector of Taxes to clarify their individual tax situation.

Thursday Thoughts 💭

We are always pleased and honoured to receive testimonials from our clients 😀

#thursdaythoughts
#throwbackthursday
#thankfulthursday
#thankyou
#keepingitlocal
#familybusiness
#financialadvice
#feedback
#thursday
#thursdaytip
#torbaybusiness
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...

Thursday Thoughts 💭

We are always pleased and honoured to receive testimonials from our clients  😀

#thursdaythoughts
#throwbackthursday
#thankfulthursday
#thankyou
#keepingitlocal
#familybusiness
#financialadvice
#feedback
#thursday
#thursdaytip
#torbaybusiness
#torbay
#torbaylife
#financialadvice
#testimonial

Put a spring in your step – make the most of tax relief

Saving into a pension is one of the most tax-efficient ways you can save. But it’s something many of us don’t know much about.

Standard Life carried out research last year and 40% of people said "they weren’t aware of it,” says David Downie, pension tax expert at Standard Life.

It means that every £100 contribution into your pension pot costs you just £80 if you’re a basic-rate taxpayer paying 20% tax.

For a free informal chat and more information about this please give Paul our adviser a call.

🌐https://torbayfinancialservices.co.uk/retirement/

#retirement
#financialadvice
#tax
#taxefficient
#standardlife
#wednesdaywisdom
#toptips
#keepingitlocal
#boosttorbay
#stmarychurchtorquay
#torbay
#familybusiness
#wearehereforyou
#free
...

Put a spring in your step – make the most of tax relief

Saving into a pension is one of the most tax-efficient ways you can save. But it’s something many of us don’t know much about.

Standard Life carried out research last year and 40% of people said they weren’t aware of it,” says David Downie, pension tax expert at Standard Life.

It means that every £100 contribution into your pension pot costs you just £80 if you’re a basic-rate taxpayer paying 20% tax.

For a free informal chat and more information about this please give Paul our adviser a call.

🌐https://torbayfinancialservices.co.uk/retirement/

#retirement
#financialadvice
#tax
#taxefficient
#standardlife
#wednesdaywisdom
#toptips
#keepingitlocal
#boosttorbay
#stmarychurchtorquay
#torbay
#familybusiness
#wearehereforyou
#free

TAKING A QUARTER OF YOUR PENSION SAVINGS TAX FREE

A lot of people know that they can access some of their pension money without paying tax but perhaps aren’t sure how it works.

When you access your pension savings, you can normally take a quarter – 25% – tax free. If you have a modern, flexible pension plan, when you take this is up to you. You can take it all at once. But you don’t have to.

You can take it in slices over a number of years if the pension plan you have lets you. This is known as phasing, and could be a smart move as it tends to be more tax efficient overall.

And, of course, just because you can, doesn’t mean you should take all – or any of it. The longer your money stays untouched inside your pension plan, the more potential it has to grow in a tax-efficient way and the higher your tax-free amount could be. Of course, that’s not guaranteed and because money in your pension is invested, its value can go down as well as up and could be worth less than what’s been paid in.

For advice on how, and if, it's suitable to access your pension savings please give us a call.
Paul (adviser) ☎️ 07891 614559
💻 paul@torbayfinancialservices.co.uk

#pension
#pensionadvice
#financialfreedom
#finance
#financialplanning
#tax
#taxes
#keepingitlocal
#stmarychurchtorquay
#babbacombestyle
#torbaybusiness
#torbayhour
#torbaybusinessnetwork
#torbaylife
#boosttorbay
#retirement
#retirementplanning
#retirementplan
#retirementgoals
#holiday
...

TAKING A QUARTER OF YOUR PENSION SAVINGS TAX FREE

A lot of people know that they can access some of their pension money without paying tax but perhaps aren’t sure how it works.

When you access your pension savings, you can normally take a quarter – 25% – tax free. If you have a modern, flexible pension plan, when you take this is up to you. You can take it all at once. But you don’t have to.

You can take it in slices over a number of years if the pension plan you have lets you. This is known as phasing, and could be a smart move as it tends to be more tax efficient overall.

And, of course, just because you can, doesn’t mean you should take all – or any of it. The longer your money stays untouched inside your pension plan, the more potential it has to grow in a tax-efficient way and the higher your tax-free amount could be. Of course, that’s not guaranteed and because money in your pension is invested, its value can go down as well as up and could be worth less than what’s been paid in.

For advice on how, and if, its suitable to access your pension savings please give us a call.
Paul (adviser) ☎️ 07891 614559 
                              💻 paul@torbayfinancialservices.co.uk  

#pension
#pensionadvice
#financialfreedom
#finance
#financialplanning
#tax
#taxes
#keepingitlocal
#stmarychurchtorquay
#babbacombestyle
#torbaybusiness
#torbayhour
#torbaybusinessnetwork
#torbaylife
#boosttorbay
#retirement
#retirementplanning
#retirementplan
#retirementgoals
#holiday

Don't pay more tax then you need to....

⭐ISAS – Don’t miss out on tax savings
⭐Use your annual ISA allowance
⭐Check your existing cash ISA holdings
⭐Consider junior ISAs (JISA)
⭐Maximise your pension contributions
⭐Don’t forget IHT and capital gains tax
⭐Act now!

Call or email us for more information and advice.

📱Paul ~ 07891 614559
💻 paul@torbayfinancialservices.co.uk
🌐 torbayfinancialservices.co.uk/
...

Dont pay more tax then you need to....

⭐ISAS – Don’t miss out on tax savings 
⭐Use your annual ISA allowance 
⭐Check your existing cash ISA holdings
⭐Consider junior ISAs (JISA) 
⭐Maximise your pension contributions
⭐Don’t forget IHT and capital gains tax 
⭐Act now!

Call or email us for more information and advice.

📱Paul ~ 07891 614559
💻 paul@torbayfinancialservices.co.uk   
🌐 https://torbayfinancialservices.co.uk/

The ground may have been a little frosty over the last week or two..... but we never are 😀

For friendly, informal and expert advice on all financial matters we are here to help and guide.

Wishing you all a super Sunday ❄️ keep safe ~ keep warm

Paul and Jacqui

#sundayvibes
#supersunday
#weeekendvibes
#walking
#staysafe
#keepwarm
#frost
#wellbeing
...

The ground may have been a little frosty over the last week or two..... but we never are 😀

For friendly, informal and expert advice on all financial matters we are here to help and guide.

Wishing you all a super Sunday ❄️ keep safe ~ keep warm

Paul and Jacqui 

#sundayvibes
#supersunday
#weeekendvibes
#walking
#staysafe
#keepwarm
#frost
#wellbeing
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66 Fore Street
St Marychurch, Torquay
Devon TQ1 4LX

e: paul@torbayfinancialservices.co.uk
t: 01803 411460   m: 07891 614559

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