Omnium Wealth Management

Thousands overpay IHT on life insurance policies

According to recent HMRC figures, in 2018/19, more than 6,000 estates paid Inheritance Tax on life insurance policies.

However, these estates would have escaped this tax had they written their insurance policy into a trust.

During the 2018/19 tax year, of the 22,100 estates that paid Inheritance Tax (IHT), more than 25% (6,040) included life insurance policies. The total value of these insurance policies was £709 million. These policies are subject to IHT, resulting in a potential tax take of £280m in that tax year.

However, life insurance policies that are written into a trust do not normally form part of a deceased's estate and would, therefore, not be liable for IHT.

Sean McCann, Chartered Financial Planner at NFU Mutual, explained:

"Many people buy life insurance without advice, so aren't aware that if they don't put the policy in trust it's included in their estate and could end up being taxed at 40%.

"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."

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