More than 6,000 estates have paid inheritance tax (IHT) on life insurance policies which could have been excluded if their policy was written into a trust, according to HMRC data.
Of the 22,100 estates that paid inheritance tax in 2018/19, HMRC figures show that more than a quarter of them (6,040) included life insurance policies.
These policies were worth a total £709m, meaning that more than £280m of IHT may have paid out on them. However, if the policies were written into a trust, they would not normally form part of the deceased’s estate and would therefore not be liable for IHT.
NFU Mutual chartered financial planner, Sean McCann, suggested that many people buy life insurance without advice, and are therefore unaware that if they don’t put the policy in a trust it is included in their estate – which could end up being taxed at 40%.
“Putting life insurance policies into trust is relatively straightforward,” McCann said. “If you have life insurance and it isn’t in trust, phone your provider and ask for a trust form. Provided you’re in good health when you put it into trust, there are normally no IHT implications, as in most cases the policy has no value.
“However, if you are seriously ill when you put the policy in trust and die within seven years, HMRC could argue that the policy had a value when you put it into trust and seek to include that value in your estate and charge inheritance tax.
“Using a trust can also mean a speedier pay out in the event of a claim, as the family won’t need to wait for probate, which can make a huge difference to dependants relying on the money to cover day to day bills.”
According to HMRC’s figures, the government collected £2.1bn of IHT between April and July this year, which is £500m more than the same period last year.
McCann added that IHT is currently “feared by many but paid by few”.
“The Chancellor has frozen the tax-free allowances for the next five years, meaning more and more families will be caught in the net,” he said. “This makes it all the more important that families don’t pay IHT on life insurance policies unnecessarily.”
Latest News
NEW BUILD IN FOCUS - NEW EPISODE OF THE MORTGAGE INSIDER PODCAST, OUT NOW
Figures from the National House-Building Council saw Q1 2025 register a 36% increase in new homes built across the UK compared with the same period last year, representing a striking development for the first-time buyer market. But with the higher cost of building, ongoing planning challenges and new and changing regulations, how sustainable is this growth? And what does it mean for brokers?
The role of the bridging market and technology usage in the industry
Content editor, Dan McGrath, sat down with chief operating officer at Black & White Bridging, Damien Druce, and head of development finance at Empire Global Finance, Pete Williams, to explore the role of the bridging sector, the role of AI across the industry and how the property market has fared in the Labour Government’s first year in office.
Does the North-South divide still exist in the UK housing market?
What do the most expensive parts of the country reveal about shifting demand? And why is the Manchester housing market now outperforming many southern counterparts?
In this episode of the Barclays Mortgage Insider Podcast, host Phil Spencer is joined by Lucian Cook, Head of Research at Savills, and Ross Jones, founder of Home Financial and Evolve Commercial Finance, to explore how regional trends are redefining the UK housing, mortgage and buy-to-let markets.
In this episode of the Barclays Mortgage Insider Podcast, host Phil Spencer is joined by Lucian Cook, Head of Research at Savills, and Ross Jones, founder of Home Financial and Evolve Commercial Finance, to explore how regional trends are redefining the UK housing, mortgage and buy-to-let markets.
The new episode of The Mortgage Insider podcast, out now
Regional housing markets now matter more than ever. While London and the Southeast still tend to dominate the headlines from a house price and affordability perspective, much of the growth in rental yields and buyer demand is coming from other parts of the UK.
In this episode of the Barclays Mortgage Insider Podcast, host Phil Spencer is joined by Lucian Cook, Head of Research at Savills, and Ross Jones, founder of Home Financial and Evolve Commercial Finance.
In this episode of the Barclays Mortgage Insider Podcast, host Phil Spencer is joined by Lucian Cook, Head of Research at Savills, and Ross Jones, founder of Home Financial and Evolve Commercial Finance.
© 2019 Perspective Publishing Privacy & Cookies
Recent Stories