Can we tell a client how much cash the company should keep?

Yes, and you are the right person to do it. Sizing a working capital buffer is accountancy work: a quarter's overheads, the VAT and corporation tax reserves, committed capital expenditure, the headroom a lender requires under a covenant. None of that is a regulated activity, and nobody is better placed to put a number on it than the firm that prepares the accounts. What changes character is the next question. Once the conversation moves from how much the business needs to what the surplus should do — a deposit, an investment, an employer pension contribution — it becomes regulated advice, and it belongs to a firm authorised to give it.

How much cash is too much for business property relief?

There is no statutory figure, which is precisely why the question gets left alone. Section 112 of the Inheritance Tax Act 1984 excludes any asset that was neither used wholly or mainly for the business over the previous two years nor required at the time of transfer for its future use. In Barclays Bank Trust Co Ltd v IRC, decided in 1998, a company held around £450,000 in cash; roughly £150,000 was accepted as required by the business, and the remaining £300,000 was treated as an excepted asset. The test is need and documented future purpose rather than a percentage, so the defence is contemporaneous evidence rather than a ratio.

Does surplus cash put Business Asset Disposal Relief at risk?

It can, because the relief requires the company to be a trading company — one carrying on trading activities without substantial non-trading activities. HMRC's guidance has long read substantial as broadly 20% of the relevant measures, although the Upper Tribunal in Allam v HMRC in 2021 declined to treat that percentage as the governing test. Cash alone rarely fails a company on its own, but cash sitting alongside an investment property, a share portfolio or a loan to a connected company is how the total quietly accumulates. With the relief rate now 18% on qualifying gains from 6 April 2026, the cost of failing the test has risen.

Our client is keeping it for a possible acquisition. Does that protect it?

Not on its own. That was very nearly the argument the executors ran in Barclays Bank Trust Co Ltd v IRC: the cash was held as a contingency in case an appropriate business opportunity arose. It did not save the £300,000. A general intention to be ready for something is not the same as an asset being required for the future use of the business, and the distinction turns on evidence created at the time rather than an explanation offered afterwards. Board minutes naming a target, a heads of terms, a quotation for plant, a lender's term sheet — those are the things that turn an intention into a documented purpose.

Is raising this the same as recommending an investment?

No, provided you stop where the regulated work starts. Observing that £440,000 appears to exceed what the business needs, that it currently attracts no relief on death, and that nobody has taken a decision about it, is professional judgement about a client's balance sheet. Naming a product, a provider, a fund or a contribution figure is not, and an accountancy practice without the relevant FCA permissions cannot do it. The clean version of the conversation is to state what you can see, ask whether anyone has looked at it, and with the client's consent introduce someone who is authorised to. Equity & General, FCA number 474163, does the regulated half.

Relevant life cover: life insurance your company pays for

What it is

Relevant life cover is a life policy taken out by a company on the life of an individual director or employee, with the benefit written for their family rather than for the business.

It exists because large employers have always been able to offer death-in-service cover through a group scheme, and a company with two or three people cannot. Relevant life is the version that works at that size, including for a single-director company.

Why owners look at it

The premium is paid by the company rather than out of income you have already paid tax on.
It is normally an allowable business expense for corporation tax, subject to the usual wholly and exclusively test.
It is not normally treated as a benefit in kind for the individual, which is the point most people are surprised by.
The benefit is normally written into trust, so it is paid to the family rather than through the estate.

For an owner-director paying themselves through a mix of salary and dividend, the difference between paying for cover personally and having the company pay for it can be substantial.

How it is normally set up

The structure is what makes the treatment work, so it is worth knowing the shape of it even though the arranging is somebody else’s job.

The company takes out the policy on the life of a director or employee and pays the premiums.
The benefit is written into a discretionary trust for the individual’s family, so it does not pass through the company or, normally, through the estate.
The policy has to be for death or terminal illness benefit only. Adding other benefits to it generally takes it outside the treatment.
It ends at a set age, and it cannot include an investment element.

Because the treatment depends on the structure, this is not something to assemble yourself from a comparison site.

What it is not

It is not key person cover. Key person cover pays the company for the loss of someone it depends on. Relevant life pays the family. A business can need both, and they are separate policies doing separate jobs.

It is also not a savings product. It has no value unless it pays out, and it stops when the term ends or the premiums stop.

Who it suits, and who it does not

Suits: owner-directors of small companies with no death-in-service cover; higher earners for whom the cost difference between company-paid and personally-paid is largest; companies wanting to offer something to a key employee without the cost of a group scheme.
Does not suit: the self-employed and partners in a partnership, who are not employees of a company; anyone wanting cover that continues after they stop working for the company; anyone looking for a policy with a surrender value.

The questions worth asking

Does the company currently pay for any life cover at all? In most small companies the honest answer is no.
If you have personal cover, when did you last look at the amount, and does it still match the mortgage and the family?
Would the cover need to clear company borrowing as well, or is that a separate question?
Is there anyone else in the business whose family would be in the same position?

Questions owners ask

Will it show on my P11D? Where it is set up correctly it is not normally treated as a benefit in kind. Where it is set up incorrectly, it can be, which is the argument for having it arranged properly.
Can the company claim the premiums? Normally, subject to the usual wholly and exclusively test applied to the whole remuneration package.
What happens if I leave the company? The policy is the company’s. Some can be transferred to the individual, and that is a question to ask at the outset rather than on the way out.
Is it cheaper than personal cover? For an owner-director taking salary and dividends, the effective cost is usually lower because the company pays before tax. The premium itself is priced on the usual things: age, health and the amount.

What to do next

Your accountant can tell you in a minute whether any insurance cost appears in the company’s accounts. If none does, nothing has been arranged rather than something having been arranged badly, and that is worth knowing.

Whether relevant life is the right structure for you, and for how much, depends on your circumstances and is a regulated advice question. Your accountant can introduce you to somebody who can answer it.

This article explains how the rules work. It is not advice about what you should do, and it does not take your own circumstances into account. Your accountant is the right place to start, and they can introduce you to a regulated adviser if the answer needs one.

Relevant life cover