Efficient tax planning is a priority for every business and business owner. Yet far too many small businesses are still overpaying tax and failing to take advantage of financial products that will not only reduce the corporation and income tax burdens but also safeguard the business through effective succession planning. In a complex market, however, taking a product-by-product approach is rarely going to work. SME businesses need a joined-up model that considers how life insurance, wealth management and business protection can work together to unlock valuable opportunities to improve tax efficiency, strengthen succession planning, protect shareholder value and build long-term wealth.

Alex Ogden, Director at Executive Life, explores business protection and the hidden tax efficiencies and savings that can be uncovered by taking a more strategic view, rather than treating protection as a standalone product.

Complex Tax Environment

With UK SME businesses facing one of the most challenging tax environments in recent years, effective financial planning has never been more important. The latest analysis from the Confederation of British Industry (CBI) confirms that the share of the tax burden on businesses has steadily increased since 2019/20 – reaching 31.3% in 2025/26, the highest since at least 1998/99 on a like-for-like basis.

In 2025/26, businesses paid 12.7% more in taxes compared to the previous year, underlining the pressures faced by businesses already wrestling with rising costs and global uncertainty. In addition to the demands of Corporation Tax and Employers’ National Insurance Contributions (NICs) (which represented almost two-thirds (65.6%) of the total tax burden of businesses in the last financial year), businesses must now consider the Plastic Packaging Tax, Energy Profits Levy, Residential Property Developer Tax, and Bank of England Levy.

At the same time, HMRC has squeezed relief and targeted previously exempt benefits such as Electric Vehicles which are now subject to escalating Benefit in Kind (BIK) rates up to 2028. Yet while both accountants and Independent Financial Advisors work hard to maximise tax efficiency and financial planning, there are still pockets of tax efficient investment being left off the table. With the majority of smaller businesses claiming only trading expenses and capital allowances, an endemic lack of awareness and understanding surrounding a number of important tax efficient opportunities is adding to both business cost and risk.

Relevant Life Insurance

One of the biggest areas overlooked by business owners is life insurance. The vast majority of individuals will have a policy linked to a mortgage – indeed around 90% of all life policies are sold by mortgage advisors. For small business owners, however, this approach is flawed on two levels. Firstly, the life policy will typically be designed to do no more than pay out the value of the mortgage – it fails to address the wider financial ramifications of the loss of the individual’s income.

Furthermore, rather than incurring the cost of paying for the policy personally, paying for a life policy through the business is not deemed a benefit in kind and therefore would save both corporation tax and income tax. Designed specifically for business owners to replicate the Death in Service benefits received by public sector employees and individuals working for larger private sector companies, Relevant Life policies are incredibly tax efficient for a business – and business owners.

Relevant Life also considers the wider financial obligations of each individual, rather than being linked to a mortgage value, and has the further advantage of being placed in a discretionary trust which means that they are not subject to inheritance tax and will be paid directly to beneficiaries.

Safeguarding Directors

Relevant Life policies can also include terminal illness cover, if required, which pays out before the individual dies, but another important consideration for small businesses is Executive Income Protection, which is also tax efficient. Again, paid by the business and not subject to Benefit in Kind, Executive Income Protection provides an individual with a percentage of their salary if they are unable to work for a period of time. This not only ensures individuals are safeguarded during times of ill health but, as a justifiable business expense, the investment reduces corporation tax and saves income tax.

A key point about Executive Income Protection is that it recognises the remuneration models typically adopted by business owners. Unlike standard income protection policies which only insure the value of the individual’s salary, Executive Income Protection considers salary, dividends and bonuses. With business owners generally opting for the tax efficient model of small salary topped up with annual dividends, mistakenly opting for a generic income protection product would leave the individual out of pocket should ill health lead to time off work.

Furthermore, Executive Income Protection also understands the way small businesses are structured, with many business owners nominating a spouse as a shareholder. These policies reflect that model, supporting both spouses on one policy to support the full family income model.

Safeguarding Business

In addition to leveraging opportunities to improve tax efficiency and safeguarding wealth, for small businesses, ensuring business continuity in the event of illness or death of a business partner is also a pressing concern. This does not, however, mean investing in key person insurance. A far more tax efficient approach is to invest in Shareholder Protection.

Again, the policy is a tax efficient company expense but, perhaps more critically, provides a clear, legally binding succession plan should a business partner decease. Typically, an individual’s shares will pass directly to a spouse, for example, who may or may not have any business knowledge, understanding or interest, leading to an uncertain company future. Under a Shareholder Protection policy, the money required to buy the shares from the inheritor is provided by the insurance to the business. This allows the remaining business owners or partners to immediately purchase the shares and achieve a more certain future.

This is an important aspect of business protection and continuity. It demands consensus regarding company valuation – with updates as required should business fortunes change – but also provides clarity. Each business owner’s spouse or inheritor knows and understands what has been agreed under the shareholder protection policy; and the business has the immediate funds required to retain ownership and safeguard future operations.

Conclusion

As tax legislation becomes increasingly complex and reliefs more constrained, business owners need more than product-based advice. There are tangible opportunities to improve tax efficiency, strengthen succession planning and protect shareholder value but rather than treating these as standalone products, businesses need a holistic financial strategy.

An integrated plan that considers the specific needs of both the business and owners and encompasses life insurance, wealth management and business protection, will minimise unnecessary tax while supporting sustainable growth and future generations.