Friends Life Protection Account Business Protection

1. Friends Life Protection Account Business Protection Key Person and Loan Protection This item is directed at professional advisers only and should not be distributed to, or relied upon by retail customers.

2. Key Person Protection Topics to cover... • Background to Key Person • How it works • How to calculate cover • Taxation • Loan Protection

3. Key Person Protection Tax We offer information about tax within this presentation, based on our understanding of current UK Tax legislation and HM Revenue & Customs’ practice. Tax rules are subject to change and their value depends on the customers circumstances.

4. Key Person Protection What is it for? • The protection of business profits • The protection of business loans • The protection of directors loans You can offer your clients Life Cover, Life or Early Critical Illness Cover or Critical Illness Cover

5. Key Person Protection Identifying the need... Business reports and accounts can assist in identifying the need for Key Person Protection. They may detail: • Names of directors and their shareholding • Directors’ remuneration • Turnover, gross and net profit • Liabilities • Amounts owed on directors loans • Profit trends over a number of years • Number of employees and payroll costs

6. Business (Applicant) Key Person Protection How does it work? Key Person (Life Assured)

7. Key Person Protection Steps to writing business... • Identify the life assured... Individuals whose skill, knowledge, experience or leadership contribute to the business’s financial success. There may be one or a number of people within a business whose death or serious illness could lead to a financial loss for the business.

8. Key Person Protection Steps to writing business... • Identify the life assured • Calculate the level of life cover required... Multiple of salary calculation or Loss of profit calculation

9. Key Person Protection Steps to writing business... • Identify the life assured • Calculate the level of life cover required... Multiple of salary calculation For Life Cover: Salary × maximum of 10 For Critical Illness Cover: Salary × between 5-7 Loss of profit calculation Either 5 x average net profit (3 years) Or 2 x average gross profit (3 years)

10. Key Person Protection Tax treatment... The rules often referred to by the Local Inspector of Taxes are commonly known as the “Anderson Rules”. They state that premiums for Key Person Cover may be eligible for tax relief if the; “Policy must be intended to meet loss of profits resulting from loss of services of employee” “Policy is an annual or short term insurance” “Sole relationship is that of employer and employee”

11. Key Person Protection Tax treatment... In summary, for Life and Critical Illness: If the Anderson rules have been met: If the Anderson rules have not been met: Premiums may receive corporation tax relief. Trading receipt may be taxable depending upon profitability Premiums will not receive corporation tax relief. Benefits will be treated as capital receipt and not taxed We can offer your clients all options – 20 year guaranteed and 20 year reviewable

12. Key Person Protection Tax treatment... It is not a question of whether the business claims the relief, it is whether they are entitled to it Consult the local Inspector of Taxes We have letters available on our website to send to HRMC

13. Loan Protection What is it for? Businesses, partnerships and sole traders need to borrow for: • New machinery • New premises • Credit or overdraft facility • General development/expansion Amount of cover = sum of the above

14. Loan Protection Tax treatment... Taxation of premiums Premiums are not an allowable deduction from profits Taxation of benefits Generally not liable to Corporation Tax

15. Key Person and Loan Protection Summary... You should now know about; • The different types of cover available and how they work • How to calculate the level of cover • The tax treatment for cover premium/proceeds Remember!

16. Key Person and Loan Protection Summary... You should now know about; • The different types of cover available and how they work • How to calculate the level of cover • The tax treatment for cover premium/proceeds Key Person Protection is to replace loss of profits caused by the death or serious illness of the key person Loan protection is to repay outstanding debts or loans in those circumstances

17. Key Person and Loan Protection = risk management! • The protection of business profits • The protection of business loans • The protection of directors loans

18. Key Person and Loan Protection Case study... Your client is Male, 48 years old, a managing director of Sapphire Group limited. The business supplies chemicals to the brewery and catering industries. Have been in business for 4 years. His remuneration for the last 3 years has been £55k, £59k and £59k. Business accounts reveal this picture: The company has applied for £1 million key person cover on the life of the sales director – the company estimates he contributes 33% to company profits’. He is also a major shareholder of the company. The purpose of the cover is to cover the potential loss of profits.

19. Key Person and Loan Protection Case study... Can you: • Calculate the key person sum assured? • Who will own the policy? And why? • Who will pay the premiums? • What criteria would the business have to satisfy to obtain tax relief on contributions? Explain? • Assuming the business cannot claim tax relief on the contributions, what will happen to the sum assured, should a claim arise? • What advice would you give regarding how the benefits might be treated by HMRC?

20. Key Person and Loan Protection Questions and further information... Any Questions? • Read our: • Friends Life Protection Account Guide • Quick Reference FAQ • Or visit • www.friendslife.co.uk/protection For further information

21. Important Information The Friends Life Protection Account allows the customer to hold a number of protection covers in one place. These covers have no cash in value at any time. Covers are subject to acceptance terms and conditions. Friends Life Protection Account is available to people who, at the start of their cover, are living in England, Scotland, Wales or Northern Ireland and are aged 18 or over.  Certain covers are affected by becoming resident outside of these countries.  Please see the individual cover sections within the Key Features Document which is available on request. An account fee of £2 per month applies regardless of the number of covers selected. Friends Life, PO Box 1810, Bristol BS99 5SN. Telephone: 0117 989 9000. Friends Life Services Limited distributes and administers financial products and services and is authorised and regulated by the Financial Services Authority, register No. 185746 (www.fsa.gov.uk/register/home.do). A company limited by shares, registered in England No. 3424940, registered office: Pixham End, Dorking, Surrey, RH4 1QA. As part of our commitment to quality service, telephone calls may be recorded. 21