Inheritance Tax – The Dilemma

Growing Interest in Life Insurance for Inheritance Tax (IHT)

Our clients are increasingly considering life insurance policies to mitigate inheritance tax (IHT) liabilities, particularly given all the recent changes introduced to business property relief and agricultural property relief, as well as potential liabilities on unused pension pots which will be subject to IHT from April 2027, if the proposed changes come into force.

Calculating and Addressing IHT Liabilities

We can calculate what a family’s IHT liability might be and then assist them with implementing a strategy to address this. There are various planning opportunities which can help mitigate IHT i.e. gifting assets away, leaving the UK, using a structure like a trust or family investment company and we can help clients consider how these might be applied to their circumstances.

They can consider taking our life insurance to cover any IHT which is due.

Expert Insight from John Quinlan,  SW6 Asset Management

However, we do not provide regulated financial advice and therefore asked an expert John Quinlan of SW6 Asset Management for some further guidance on how a Whole of Life Policy could be used to pay any inheritance tax when it becomes due.

John explained that ‘Over the years landed estates have been kept intact by finding the money to pay any death duties. Where the estate is mostly a property asset it is difficult to find these huge sums to pay any inheritance tax bill. However, there is a solution, create a fund to pay the tax bill.

Creating the fund is as simple as taking out life insurance. A Whole of Life policy will pay a lump sum on the death of the policyholder. Unlike term assurance, which ends at a certain point Whole of Life last until death whenever it happens.

The advantages include the policy is placed in a simple flexible discretionary trust that keeps the sum assured out of the estate. The funds can be used to pay any IHT due. However, if tax rules change or the value of the estate changes the beneficiaries can be changed to create generational wealth. Finally, any payments will also reduce the value of the estate which is subject to IHT.’

Example

• 55 year old non-smoker
  
  
• Sum assured £1,000,000
  
  
• Premium £1,155 pm
  
  
• Subject to underwriting
  
  
• If the insured live to 90 total premium paid £485,100. Guaranteed payment £1,000,000.
  
  

Whole of Life Policies in Family Tax Planning

On review we can see that there’s now a place in a family’s tax planning to consider taking out a Whole of Life policy in order to fund IHT liabilities, particularly where the families main assets are illiquid like the family estate, or linked to the value of the family business, both of which the family may want to retain rather than have to sell to fund an IHT bill.

Get in Touch

📞 If you would assistance with inheritance tax planning or an introduction to John Quinlan at SW6, please contact us using the form below.

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