High-Net-Worth Planning
Insurance to support potential Inheritance Tax liabilities
Cover considered specifically for an anticipated estate liability.
Where an estate is expected to face an Inheritance Tax charge, whole-of-life cover written in an appropriate trust is one arrangement families explore, so funds may be available to trustees outside the estate.
Whether this is suitable — and what it may achieve — depends entirely on individual circumstances and the advice received.
Things worth considering
- We do not provide tax advice and make no claim about tax outcomes
- Trust structure and drafting are central to the result
- Estimates must be revisited as rules and asset values change
In plain English
Inheritance Tax: working out whether it applies before deciding anything
Inheritance Tax is charged on the estate of someone who has died, and sometimes on gifts made in the seven years before death. The individual nil-rate band is £325,000, and the standard rate charged above the available thresholds is 40%. There is normally no tax on anything left to a spouse or civil partner, or to a qualifying charity.
Two further points change the arithmetic for many households. An unused nil-rate band can generally be transferred to a surviving spouse or civil partner, and a residence nil-rate band of up to £175,000 may be available where a home is left to direct descendants, tapering where the estate is large. A charity rate of 36% can apply where at least 10% of the net estate is left to charity.
The first useful step is establishing whether tax is realistically in play at all. That depends on the whole estate, marital status, how it is left and which allowances apply — not on any single asset or any area average.
This describes the law of England and Wales. Scotland and Northern Ireland have different rules.
Step by step
What the process involves
- Step 1
Total the estate properly
Property, savings, investments, business and agricultural assets, personal possessions and any life policy not written in trust, less debts. Include gifts made in the previous seven years.
- Step 2
Identify the allowances that actually apply
Nil-rate band, any transferable band from a late spouse or civil partner, and any residence nil-rate band. Getting this right often changes the answer entirely.
- Step 3
Consider whether anything should change
Options discussed with specialists commonly include the spouse and charity exemptions, lifetime gifting and the seven-year rule, regular gifts out of surplus income, trusts, business or agricultural reliefs where they apply, and writing protection policies in trust so proceeds fall outside the estate.
- Step 4
Think about liquidity, not only liability
Tax is often payable before assets can be sold or a grant issued. Where an estate is mostly property or a business, the practical question is what money will be available at the time, and life cover written in trust is one of the ways that is addressed.
- Step 5
Review it
Thresholds, reliefs and the treatment of particular assets change. A plan built on today's rules needs checking.
Being straight with you
What this cannot do
- No arrangement can be presented as guaranteeing a tax outcome. Legislation and HMRC practice change, and reliefs have conditions.
- Giving something away while continuing to benefit from it — a home you still live in, for example — is generally caught by the gift with reservation of benefit rules.
- Insurance does not reduce a liability. It can provide money to pay one, if the policy is set up appropriately.
- Cromwell Associates does not give tax advice and does not arrange policies. This is general information to help you frame the question.
Before you speak to anyone
Useful things to have ready
Gather or think about
- A full asset and debt list, including pensions, business interests and anything held abroad
- Marital status, and whether a spouse or civil partner has died and how their estate was left
- Whether a home would pass to children, step-children or grandchildren
- Gifts made in the last seven years, with dates and amounts
- Existing life policies, and whether each is written in trust
- Your existing will and any trust already in place
Questions worth asking the specialist
- On these figures, is there actually a projected liability, and what are your assumptions?
- Which allowances have you applied and why?
- What are the drawbacks and risks of what you are suggesting, not only the benefits?
- What do I give up, and could I ever need it back?
- What are your fees, are they fixed or ongoing, and do you receive commission on anything you arrange?
- Are you authorised or qualified to advise on this specific point, and who regulates you?
- Should my accountant or solicitor be involved in this?
Ask us to explain any charges that would apply, and any remuneration we may receive for making an introduction, before you decide whether to proceed.
Sources
Official guidance referenced on this page
Enquire about insurance to support potential inheritance tax liabilities
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Cromwell Associates coordinates enquiries and introduces clients to appropriately qualified specialists. We do not provide regulated financial, legal or tax advice, and submitting this form places you under no obligation.
Your enquiry is reviewed personally before any introduction is made.