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Tax advisers are urging rich Britons to contemplate life assurance as a approach to cut back inheritance tax and assist future generations pay the levy, a apply that has till now flown underneath the radar.
Wealth managers instructed the Monetary Occasions that they anticipated “complete of life” cowl arrange in a belief to change into rather more fashionable because of chancellor Rachel Reeves’ enlargement of the inheritance tax regime within the Autumn Budget.
Life assurance held in a belief means the coverage sits exterior of the particular person’s property and is due to this fact not topic to plain price inheritance tax at 40 per cent. Entire of life cowl pays out a assured sum of money to beneficiaries upon loss of life and can be utilized to foot an property’s IHT invoice.
Life assurance covers for a life-time, whereas life insurance coverage is restricted to a set time period.
Tax specialists mentioned the apply was an “environment friendly” approach to pay IHT, as a result of beneficiaries can not entry most different property till the executors have probate, earlier than which the IHT invoice must be settled.
Hazel Bowen, a senior wealth planner at Canaccord Wealth, mentioned this life assurance apply was a lesser-known, “secret” approach to mitigate IHT, and that the modifications to the tax regime within the Price range had been “pretty seismic”.
As life assurance was “a standalone contract with you and the supplier, it is not going to be impacted by future Price range bulletins or tax modifications”, she added.
Ian Dyall, head of property planning at wealth supervisor Evelyn Companions, mentioned life assurance helped “get across the money movement problem” when the policyholder’s beneficiaries are met with the tax invoice.
“It’s positively growing in significance in advisers’ minds,” he added. “We’re doing much more coaching round it.”
In her October Price range, Reeves introduced that unused pension pots can be included in estates from April 2027 and topic to IHT. She additionally set out a crackdown on loopholes within the regime that imply some landowners can be hit with a 20 per cent levy from subsequent spring.
From April 2025, rich foreigners who’ve been within the UK for greater than 10 of the previous 20 years face paying IHT on their worldwide property, plus a interval of publicity to the levy even after they’ve left the nation.
Catrin Harrison, senior affiliate at Charles Russell Speechlys, a regulation agency, who advises purchasers on trusts and property planning mentioned: “Insurance coverage brokers are inundated with new purchasers in the meanwhile and are racing towards the clock to get cowl in place earlier than the April tax modifications.”
A lot of her purchasers who’ve determined to not go away the UK instantly, regardless of latest reforms to the non-dom regime, have been utilizing life assurance to mitigate the potential threat of an surprising inheritance tax legal responsibility.
“The life insurance coverage corporations are one of many winners from the modifications to the non-dom regime,” added Tim Stovold, head of tax at Moore Kingston Smith, an accountancy agency. “The worry of dropping a bit of the household’s wealth to IHT is handled by insuring the issue away”.
Paying month-to-month premiums on a life assurance coverage additionally reduces the quantity that may in any other case be left within the property and in the end topic to the 40 per cent IHT price.
Dyall mentioned Reeves was “unlikely” to crack down on the apply as a result of “it’s an environment friendly approach to pay the tax and so the federal government is getting its cash. It additionally means individuals are free to do with their cash as they need figuring out that, upon loss of life, there’ll be cash to pay the IHT invoice.”
Ian Cook dinner, a chartered monetary planner at Quilter Cheviot, mentioned that life assurance in belief would “positively spring again into vogue” because of Reeves modifications to the IHT regime round pensions and agricultural land.
“I’m going to be encouraging purchasers to have a look at taking life insurance coverage, extra so than ever earlier than,” he added.
The Treasury didn’t instantly reply to a request for remark.
