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The wealthy in Britain are turning to life insurance coverage to scale back the ache of surprising inheritance tax payments following a contentious overhaul of the system within the autumn Finances.
“Each market has its day within the solar. Life insurance coverage is having a second,” mentioned Holly Hill, affiliate director at insurance coverage dealer John Lamb Hill Oldridge, including that she had seen “a deluge” of latest insurance policies taken out by property homeowners following the Finances in October final 12 months.
John Lamb Hill Oldridge mentioned it had beforehand been writing new life insurance coverage insurance policies for 30 wealthy particular person shoppers at anybody time, however because the tax reforms had been introduced, the quantity had gone as much as 110.
In Rachel Reeves’ first Budget as chancellor, she introduced reforms to agricultural property reduction (APR) and enterprise property reduction (BPR). On account of the adjustments, folks with massive estates or corporations that had beforehand been exempt can pay inheritance tax at 20 per cent on property above £1mn from April 2026.
Reeves additionally confirmed the abolition of the non-dom regime, which allowed British residents who declared their everlasting residence as being abroad to keep away from paying UK tax on overseas revenue and beneficial properties.
There isn’t a determine for what number of wealthy people have taken out life insurance coverage cowl and the way a lot they’ve insured in opposition to. However Hill mentioned her firm had insurance policies overlaying £3.5bn, which represented inheritance tax on property of £8.75bn.
Persons are taking out each fixed-term insurance policies, which cowl them for a set interval of their life, and whole-of-life cowl, advisers mentioned.
Life insurance coverage insurance policies are held in belief and might be an efficient means of settling the IHT invoice of an property. Each sorts of coverage pay out within the occasion of demise, making certain heirs will not be pressured to promote property rapidly to pay the UK tax authority inside six months of demise.
Hill mentioned that former non-dom shoppers who had moved abroad however saved their UK property had thought: “I would as effectively simply slap an insurance coverage coverage on my home in Kensington . . . after which I can simply be free overseas and never fear,” about their heirs struggling to pay a future IHT invoice, as this might be lined by their coverage.
David Gregory, a senior accomplice at 1291 Group, an insurance coverage advisory enterprise for rich households, mentioned there had been “an enormous enhance in demand” to fulfill new tax liabilities.
There had been indications of contemporary demand from early 2024, when then-chancellor Jeremy Hunt introduced he wished to abolish the non-dom regime, which gave folks safety from IHT on non-UK property.
Catrin Harrison, a accomplice at regulation agency Charles Russell Speechlys, mentioned: “Beforehand, we didn’t work with the insurance coverage trade a terrific deal; we might construction fairly good safety, however now we have now people who thought their non-UK wealth was protected and it’s instantly not.”
Harrison mentioned life insurance coverage “might be surprisingly good worth”.
If a non-dom had been paying the £90,000 annual charge to make use of the tax-favourable “remittance foundation” beneath the earlier regime, they may now be spending it on inheritance-tax safety as an alternative, she mentioned.
Those that have determined to stay within the UK will see their worldwide property doubtlessly subjected to the usual charge of inheritance tax at 40 per cent.
The Treasury forecast that ending the non-dom system would herald £12.7bn by the 2029-30 tax 12 months, whereas the change to APR and BPR would increase £1.8bn.
