Insuring an IHT Liability

Insuring an IHT Liability

With the Treasury looking to haul in a record intake of Inheritance Tax (IHT) this year, individuals and families are always on the search for potential solutions to mitigate the IHT liability. One possible resolution is the use of a whole of life policy, written in trust, which covers the IHT liability with premiums paid both reducing and remaining outside of the estate.

As the whole of life policy is placed into trust, the premiums paid, are treated as gifts. Each UK resident is entitled to gift an annual exemption of £3,000 without causing any tax implications, and therefore this allowance can be utilised when paying premiums to your whole of life policy. Alternatively, if the premiums amount to more than £3,000 per annum then they are also treated as exempt from IHT. However, the important caveat is that you can prove that they are gifts from your normal income and do not affect your standard of living.

This means that any premiums paid into the whole of life policy can have a double effect. The proceeds of the policy, because they are written in trust, remain outside your estate for IHT purposes and premiums paid will continue to reduce the value of your estate, further reducing your estate’s IHT bill and therefore providing a more substantial inheritance for your beneficiaries.

It is crucial that when the policy is set up, that it is written in trust. Unbiased’s Tax Action campaign found that approximately £530 million is paid unnecessarily each year in IHT due to life insurance policies not being placed into trust. By placing your whole of life policy in trust, the benefit amount will be paid to your trustees and remain outside your estate – so it will not be liable for IHT on your death. The beneficiaries of the trust can use this to help the personal representatives pay the IHT bill due on your estate.

The Financial Conduct Authority does not regulate taxation and trust advice.

The information is based on our understanding of current HMRC tax rules applying for tax year 2023/24 which may be subject to future change. 

All information on this website is for information purposes only and should not be interpreted as providing individual financial advice. It is important you understand the full benefits and risks of potential decisions as they relate to your individual circumstances and you should seek professional, regulated financial advice before embarking on any course of action.

Get In Touch

Leave us a message

A&J Wealth Management Ltd


Bigfrith Lane

Cookham Dean



01628 480200

© 2023 A&J WEALTH MANAGEMENT LTD A&J Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register, no 428590, at Registered in England, Company no: 5105933. Registered Head Office: Sawfords, Bigfrith Lane, Cookham Dean, Maidenhead, Berkshire SL6 9PH

Scroll to Top