Life Assurance To Pay Inheritance Tax
This is the default advice route for most inexperienced Inheritance tax advisers and to be fair it does work. (The Bluebond group does not arrange this type of cover but will refer you to a separate firm of independent financial advisers should you decide you require it.) However, it is usually an expensive route for most clients. When you add up the premiums over possibly 20 years the costs are often a lot more than setting up a series of trust arrangements. This problem is made worse if you have any health problems – as is likely if you are over 60 years old. 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 15 out of the last 20 tax 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.
For clients whose assets are large and who wish to retain assets in excess of their IHT allowances, this will mean they are liable to inheritance tax. This arrangement does not avoid the tax but provides the money to pay for it. However, it is usually an expensive option when comparing the long-term premiums against the cost of setting up a trust.
Inheritance tax planning is complex and should not be undertaken without advice from an experienced inheritance tax planner. Errors can be costly.
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