Excepted Group Life Schemes: The Employer's Guide

Most employers offering death-in-service benefits to staff default to a registered group life scheme. For many companies this is entirely appropriate. But for high-earning employees, international staff, and those approaching pension lifetime limits, a registered group life scheme can create unexpected tax complications. An excepted group life scheme avoids these problems entirely — and for the right population of employees, it is the superior choice.

Two Types of Group Life Insurance

UK group life schemes fall into two broad categories:

Registered group life schemes are approved pension schemes registered with HMRC. Death benefits paid under these schemes are technically pension benefits. Historically they counted towards the member's pension lifetime allowance (LTA). The LTA charge was removed from 6 April 2023 and the LTA was abolished entirely from 6 April 2024, replaced by the lump sum and death benefit allowance (LSDBA, £1,073,100). The framework of registered pension rules still applies, meaning the benefit can in certain circumstances interact with existing pension savings and the LSDBA.

Excepted group life schemes are not registered pension schemes. They fall outside the pension tax framework entirely. Death benefits are not tested against any pension limit. The scheme is instead governed by the rules of discretionary trusts and the relevant income tax legislation for life assurance.

For most employees, the distinction is academic. But for senior executives with large pension pots, or for international employees who are not UK pension scheme members, the excepted structure is frequently the right approach.

Why Excepted Group Life Became More Relevant

Before April 2023, the pension lifetime allowance (then £1,073,100) created a real problem for high earners. A death-in-service lump sum from a registered scheme counted towards the LTA. An employee with a pension fund of £900,000 and a death-in-service benefit of £500,000 could face an LTA charge on the excess — even though the death benefit was never intended to be pension-like income.

The LTA charge was abolished from 6 April 2023. However, the trust structures and scheme designs that evolved in response to LTA concerns remain valuable for other reasons. Excepted group life schemes:

• Sit outside the pension framework entirely, providing clean legal separation from pension savings.
• Use discretionary trusts that can be tailored to employer and employee needs.
• Avoid the HMRC scheme rules that apply to registered pensions (such as reporting requirements and the pension death benefit nomination framework).
• Are available to employees who are not eligible for membership of a UK registered pension scheme — including certain non-UK resident employees.

How an Excepted Group Life Scheme Is Structured

An excepted group life scheme is established under a discretionary trust. The insurer typically provides a master trust deed, under which the insurer acts as trustee (or appoints a separate trustee entity). Employers participate in the scheme by signing an adherence agreement.

The structure works as follows:

1. The employer enters into a group life insurance contract with the insurer.
2. The trust is the policyholder. The insurer (or its trustee subsidiary) holds the policy on trust for the benefit of members' dependants.
3. Employees are the lives assured. Each employee's life is covered under the group policy.
4. On death, the insurer pays the claim amount into the trust. The trustees then distribute to the dependants of the deceased employee.

Because the employer is not the policyholder — the trust is — there is a clear legal separation between the employer's assets and the death benefit. This means the benefit is not assessed against the employer's balance sheet and cannot be claimed by the employer's creditors in insolvency.

Benefit Levels and Cover Structure

Benefits under excepted group life schemes are typically expressed as a multiple of salary. Common multiples are two, three, or four times annual basic salary, with some employers offering higher multiples for senior staff.

Unlike registered group life (where pension rules technically cap benefits in certain ways), excepted schemes do not have a statutory benefit cap derived from pension legislation. The insurer's underwriting limits apply, and commercially most insurers are comfortable with benefits up to four or five times total earnings for a standard workforce, rising to higher multiples for named senior employees subject to individual underwriting.

Benefits can be structured as:

• Flat multiple of salary for all employees (simplest to administer)
• Graded multiples by grade or seniority (e.g. 2× for standard staff, 4× for managers, 6× for directors)
• Individual named lives added separately with bespoke benefit amounts

Some excepted schemes also include a spouse or dependant benefit alongside the main employee cover.

Are Premiums Tax-Deductible for the Employer?

Yes. Employer premiums for an excepted group life scheme are generally allowable as a deduction against corporation tax (or income tax for unincorporated businesses), subject to the wholly and exclusively test. The employer must be able to demonstrate the premiums are a genuine cost of employing staff, which is straightforwardly satisfied for most group life arrangements.

Premiums should be structured as employer contributions to the trust arrangement. The employer does not pay the premiums directly to the insurer; rather, premiums flow through or on behalf of the trust. In practice, most insurers bill the employer directly under the group scheme, which is administratively equivalent.

Are Premiums a Taxable Benefit for Employees?

This is one of the most commonly misunderstood aspects of excepted group life. Under a correctly structured excepted scheme:

• Premiums paid by the employer are not a taxable benefit in kind on the employee. There is no P11D entry required.
• The employee pays no income tax or national insurance on the cost of their death-in-service cover.

This treatment arises because the arrangement is a group life policy held in trust for the benefit of the employee's dependants, not a benefit provided directly to the employee. The employee never receives the premium as income, and the death benefit is not income either.

Compare this with a situation where an employer paid a premium for a personal policy owned by the employee: that would be a taxable benefit in kind reported on a P11D. The trust structure of an excepted scheme prevents this.

The exception to this favourable treatment applies where the scheme is not an excepted group life scheme as defined by HMRC — for example, if it includes non-qualifying benefits or is structured in a way that does not meet the requirements. Always take specialist advice on scheme design before inception.

Difference Between Excepted Group Life and Relevant Life

Both excepted group life and relevant life policies achieve a similar result: tax-efficient death-in-service cover outside the pension framework. The key differences are:

	Excepted Group Life	Relevant Life
Scheme type	Group (multiple lives)	Individual (one life per policy)
Minimum employees	Typically 3–5 (varies by insurer)	Can be single director or employee
Policyholder	Trust (master trust)	Employer
Best for	Employers with a workforce	Small companies, sole directors
Admin	Insurer manages trust	Employer appoints trustees
Portability	Employee loses cover on leaving	Policy may be portable to individual

For a sole-director limited company, a relevant life plan is almost always more practical than establishing a group scheme. For companies with ten or more employees, an excepted group scheme typically becomes more cost-effective because the insurer's administration costs are shared across the group.

Nominating Beneficiaries in an Excepted Scheme

Because the scheme uses a discretionary trust, there are no formal beneficiary nominations in the pension sense. Instead, employees typically complete an expression of wishes form, indicating who they would like to benefit from the death payment. Trustees take these wishes into account but are not legally bound by them.

The class of potential beneficiaries is defined in the trust deed. Most excepted scheme trust deeds include the employee's spouse, civil partner, children, dependants, and sometimes a broader class of relatives or nominated individuals.

Employees should complete expression of wishes forms at inception and update them on any change in personal circumstances — marriage, divorce, birth of children, or death of a previously nominated beneficiary.

Claims Process Under an Excepted Scheme

When an employee dies in service, the employer notifies the insurer. The insurer requires a claim form, death certificate, and confirmation of the employee's salary at the date of death. For deaths from causes other than accident, a short medical questionnaire may be required.

Once the claim is agreed, the insurer pays the sum into the trust. The trustees then arrange distribution to the beneficiaries. Because the scheme is held in a discretionary trust rather than as a pension benefit, probate is not required. Payment can typically be made within a few weeks of the claim being agreed.

Administering an Excepted Scheme

Excepted group life schemes are simpler to administer than registered pension schemes. There is no annual HMRC registration requirement, no annual allowance monitoring, and no pension scheme returns to file. The main ongoing obligations are:

• Renewing the group policy annually (or allowing automatic renewal if on a rolling contract)
• Notifying the insurer of staff joiners and leavers (typically quarterly or at renewal)
• Updating the insurer on salary changes to ensure benefits remain correctly calculated
• Retaining expression of wishes forms for all current members

Most insurers provide an online administration portal for group schemes, which significantly reduces the administrative burden compared with manual processes.

International Employees and Excepted Schemes

Excepted group life schemes can be extended to cover internationally mobile employees, subject to insurer agreement. The key underwriting consideration is residency: most UK insurers require employees to be resident in the UK, EEA, or specified countries.

For genuinely international workforces, some employers run parallel schemes — a UK excepted scheme for UK-resident employees, and a separate international group life arrangement (typically offshore) for non-UK resident staff. Global Investments advises on the design and placement of both UK and international group life schemes.

When to Consider an Excepted Scheme

An excepted group life scheme is worth considering when:

• Your company employs ten or more people and wants cost-effective group life cover
• You have high-earning employees who would benefit from keeping death benefits outside the pension framework
• You employ internationally mobile staff who are not eligible for a UK registered pension scheme
• You want a clean, simple trust structure with minimal pension-related complexity
• You are consolidating existing group benefits and want to review whether registered or excepted better suits your workforce profile

How Global Investments Can Help

Global Investments advises employers on the design, placement, and administration of group protection schemes — including both registered and excepted group life arrangements. We compare options across the market, advise on trust structure, help prepare employee communications, and review scheme design as your workforce evolves.

For companies with a mix of UK and internationally resident staff, we provide integrated advice covering UK group schemes alongside international group life and international income protection solutions. Contact us to discuss which structure is appropriate for your business.

This guide is for information only and does not constitute regulated financial advice. Tax treatment depends on individual circumstances and legislation may change. Seek independent professional advice before establishing a group scheme.