One estate-planning tool is the use of life insurance and sales have surged 18% as families rush to protect their estates from these increases.
Life insurance as a planning tool
Holding life insurance policies in specific types of trusts can ensure they are exempt from IHT, making them an increasingly useful estate-planning tool. Life insurance payouts are also free from income and capital gains tax.
The increased use of life insurance to help reduce inheritance tax comes after the rise in IHT announced at the last budget. Pensions, agricultural property and business property (such as family-owned businesses or AIM shares) will soon be subject to IHT.
With more estates becoming liable for IHT, people have been increasingly turning to products like life insurance to shield their families from future IHT bills. New IHT rules on pensions, due to take effect on 6 April 2027, reverse the long-standing IHT exemption for defined contribution pensions, which will now be subject to the 40% IHT rate. The value of these pensions will push many families above the £325,000 nil-rate band.
Are there other options?
Other than making gifts during your lifetime, which may be further restricted in the forthcoming budget, opportunities to reduce IHT are narrowing. Life insurance is one of the few remaining tools for families planning ahead and we have seen an increased number of enquiries for advice in this area.
How TWM can help
Our Private Client team works with individuals and families to prepare for the future and minimise tax burdens. We can advise on how best to structure your estate, helping you safeguard family wealth and provide for future generations.
To discuss your requirements, please contact our Private Client team today for an initial, no-obligation consultation.