Bluebond Estate Planning
Bluebond Inheritance Tax Planning
Bluebond Property Tax Planning

Life Assurance To Pay Inheritance Tax

Life Assurance To Pay Inheritance Tax

This is the default advice route for most inexperienced financial advisers and to be fair it does work. However it is usually the most expensive route for any client and thus not our favoured option. When you add up the premiums over possibly 20 years the costs are certainly a lot more than setting up a series of trust arrangements. This problem is made worse if the clients have any health problems as is likely in the over 60 population.

That being said they do have their place in a comprehensive plan to mitigate inheritance tax. Married couples (or civil partners) who are both UK domiciled or people who have been UK resident for over 17 years will have a Nil Rate Band (NRB) allowance each which can be passed on to their surviving spouse if unused on death.

Currently the allowance is £325,000 each which means a surviving spouse who inherits a full NRB allowance can hold up to £650,000 in their estate before Inheritance tax is payable. Should they wish to hold a higher level than they could insure against the 40% tax by insuring 40% of the excess estate to pay out on death. This is usually done by means of a Whole of Life policy written on a “Standard” Joint life second death basis and the policy placed into a suitable trust. This means the policy, provided the premiums are kept up to date will pay out the sum assured on the death of the second spouse to die.

This arrangement does not avoid the tax but provides the money to pay for it. So for clients whose assets are large and who wish to retain assets which will mean they are liable to tax could choose this plan as an option.

However it is an expensive option. We prefer to set up two plans. One to hold until death and pay the tax and one “medium term” to cover say 10-20 years to give a client time to gift assets away usually into life time trust arrangements. The second “medium term” plan is set up on a “maximum” basis rather than a standard basis thus bringing the premiums down significantly.

The planning is relatively complex and should not be undertaken without advice from an experienced inheritance tax planner. Errors can be costly.

Call us or email us for help and advice.

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