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Inheritance Tax
Protect your life insurance
payout from Inheritance Tax
An increasing number of estates are falling within the tax net every year
An increasing number of estates are falling within the Inheritance Tax
net each year, largely due to rising property prices and frozen tax thresholds.
The Office for Budget Responsibility forecasts that HM Revenue & Customs
(HMRC) will collect £8.7 billion in Inheritance Tax for the 2025/26 tax year [1].
I
Inheritance Tax implications, as the policy has no
value. However, if you are seriously ill when you
place the policy in trust and die within seven years,
HMRC may consider the policy to have had value
at the time of transfer and may seek to charge
Inheritance Tax. If you are a couple, consult us to
f you have a life insurance policy, it is
Importance of trust arrangements
ensure you minimise the Inheritance Tax bill when
important to ensure it falls outside your
If you do not write a life insurance policy into an
the second person dies. t
estate by writing it into an appropriate trust.
appropriate trust, the proceeds on your death
This means it will not count towards the
will simply increase the value of the money and
value of your estate when calculating how much
property you leave behind. Life insurance can be a
Inheritance Tax (IHT) you may owe.
very effective estate-planning tool, but only when
Here, we look at how life insurance is often used
to cover potential IHT bills and how to protect
any payout from being included in your estate for
Inheritance Tax purposes.
structured correctly to keep the payout separate
from your taxable estate.
Using a trust can also save up to 40% in
Inheritance Tax on the payout, and means you
do not have to wait for probate. Probate can take
Securing financial peace of mind
many months, tying up essential funds. If not held in
Most people take out life insurance to ensure their
trust, the policy may be taxed for IHT and delayed,
loved ones are financially protected if they die.
defeating its very purpose of providing quick liquidity
It provides valuable peace of mind that financial
to cover taxes and day-to-day bills.
commitments, such as a mortgage, will be covered.
If you are unsure whether this is the right option
for you or need help navigating the complexities
of trusts and Inheritance Tax, please contact us
to safeguard your family's wealth.
Source data:
[1] https://obr.uk/forecasts-in-depth/tax-by-tax-spendby-spend/inheritance-tax/
It also helps manage other expenses that could
Taking practical steps to protect your wealth
otherwise go unpaid if you are no longer around.
Putting your life insurance policies into an
Increasingly, people are using life insurance
Have you secured your
wealth for your family's future?
appropriate trust is straightforward. You can do
This article does not constitute tax, legal or financial
advice and should not be relied upon as such. Tax
to provide their loved ones with a lump sum to
this either when you take out cover or later. We can
cover any Inheritance Tax bill upon their death.
assist you with this. If you have life insurance that
authority, depends on the individual circumstances of
Although this will not reduce the amount you
is not currently in trust, please contact us and we’ll
each client, and may be subject to change in the future.
have to pay, it means your family will not end up
explain what to do next.
with a potentially large bill to pay directly from
your estate.
planning is not regulated by the financial conduct
For guidance, seek professional advice. Inheritance
Provided you are in good health when you
tax, estate planning and trusts are not regulated by the
place the policy in trust, there are normally no
Financial Conduct Authority.
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