Wealthy families are using life insurance policies to beat Rachel Reeves’s inheritance tax raids.
Brokers and financial advisers have told The Times that enquiries about life insurance policies for inheritance tax purposes have more than doubled since the chancellor announced a wave of reforms to the system in October.
Life insurance is expensive but it will pay out a lump sum when you die and the policy can be put in trust, so it will be outside your estate for inheritance tax (IHT) purposes. It can be set up to automatically pay off any bills.
Edward Durell from the life insurance specialist Cover Direct said: “We have seen a huge increase in people asking about using life insurance policies as a cost effective way to mitigate inheritance tax. I would say these are up about 100 per cent.
“There are a lot of positives to these policies because they will immediately pay out and cover that bill, meaning there is no need for beneficiaries to sell property, or get into difficulties paying the taxman.”
In her first budget in October, the chancellor made changes to agricultural property relief and business property relief systems so that estates or companies will have to pay 20 per cent IHT on assets above £1 million from April 2026. Previously these businesses had been exempt from inheritance tax, regardless of the size of their estate.
Mike Strutt from Risk Assured, another life insurer, said the changes had resulted in a doubling of the number of enquiries from customers looking to take out lifetime insurance policies to help soften expensive bills for relatives.
Strutt, whose company specialises in IHT policies, said that because the legislation had not been published yet, many had not yet signed up to these policies. “We are encouraging people to get their ducks in a row so that they are ready to roll when they do. We expect there to be a big wave of people taking out policies when the IHT changes come in,” he said.
The increase in inquiries is largely driven by those looking to take out whole life policies (also known as life assurance) where you pay a monthly premium to get a lump sum when you die.
The insurance broker LifeSearch said that sales of whole life cover were up 230 per cent since the autumn, while other companies have reported similar increases.
Chris Etherington from the tax specialist RSM said that life insurance policies were good for businesses and farms who would have most of their estate tied up in illiquid assets such as property, which can take time to sell. “Many are thinking that as long as the premiums aren’t too excessive, they should probably take out a life insurance policy to meet these IHT bills,” he said.
He said that others were looking at life insurance to help cover any liabilities from unused pension pots, since Reeves changed the tax policy. From April 2027 unused pension pots will also be subject to inheritance tax.
“More and more people are looking at their pension pots and wondering whether to withdraw funds, but then decide to take out life insurance to cover the potential bill,” Etherington said.
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There are three types of insurance that can cover inheritance tax liability: whole of life policies; “gift inter vivos” policies, which cover covering specific gifts rather than someone’s entire estate; and term insurance, which covers set periods, often ten or 20 years, or until a set age of 90.
Sean McCann from the insurer NFU Mutual said more business owners were looking at gift inter vivos policies to protect gifts to loved ones. These policies last for seven years after you give an asset to someone (after which it would fall out of your estate for IHT purposes anyway), and will payout to cover the bill if you die before the end of the policy term.
McCann said: “We are seeing more people giving away assets and they’ll often take these seven-year policies, including one owner of a £5-million business who wanted to hand over shares in it to his children.”