Own a business? Pay your spouse?
Good idea for tax purposes (and ideally they should actually be doing something for the income too!).
But, does it cause problems and disadvantage you in other areas?
Take getting a mortgage as an example.
If you pay your spouse £11,500 (tax allowance) and for some funny reason you don’t want them on your mortgage (maybe they have other credit commitments or some other valid reason why you wouldn’t want them to part own the property) then you could be reducing your borrowing potential by as much as £11,500 x 5 = £57,500.
That’s just one possible example of being potentially disadvantaged for paying your spouse a salary from your business.
So what is so good about income protection for company directors?
Well, I’ve just had a conversation with a well known UK insurer with a rich pedigree of providing Income Protection insurance and I’ve learned the following.
If you are responsible for bringing home the bacon and your spouse could not generate the business income if you were off sick then, with this particular insurer, you can add back their income & dividends to the total income figure used to calculate your cover.
Let’s use a low figure of £30,000 profit for simplicity.
You both get £10,000 salary + £5000 dividends. (£15k each).
With some insurers you may only be able to use your £15k to work out how much cover you can get.
The maximum income protection possible is 50% – 60% of ‘gross annual income’.
Using the lower figure; 50% of £15k = a measly £7500 of possible income protection.
But, if you can add back and use the total business profit you can cover 50% of £30k = £15k per annum.
And this is paid TAX FREE.
So imagine 2 scenarios:
1/ You’re sick, at home and you have no money and the stress is piling up. You don’t know how the hell you’re going to pay the mortgage – you might lose your house.
2/ You’re sick at home, the bills are getting paid by an insurance company and you can slowly recuperate and get back into work in your own time.
Which would you prefer?
So if you are a company director / business owner and think scenario 2 is preferable then get in touch with an adviser, get a quote and get yourself covered!
But make sure you speak to someone who knows what they’re doing and which insurance companies to turn to for the best deal.