- It provides funds to buy the share of a partner or shareholder who dies or is seriously ill.
- Unless the business is buying back the shares, it is not involved in the arrangement.
- For a small number of lives assured, life of another policies can be a simpler alternative to policies written in trust.
- The policy benefits are paid to the survivors, and used to buy the shares from the family.
- A cross-option agreement ensures that the funds are used for the purpose intended.
To ensure that HMRC views this type of protection as a business arrangement, it is important that each person involved pays a ‘fair share’ of the total premiums based on the likelihood of their benefiting from the cover. The youngest of the group is more likely to benefit than the oldest, and should therefore pay more. The calculations to achieve this ‘premium equalisation’ can be quite complicated, but you can make them simple by using our calculator.