Using life insurance in inheritance planning

A consideration of the inheritance tax (IHT) treatment of lifetime gifts and the insurance options available to mitigate the IHT effects of “failed” gifts
October 2019

Barry Foster

Vice President,
Strategic & Technical Sales

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Risk Disclaimer

This content is based on our understanding of legal and tax regulations and practice at the time of writing (October 2019). It has been produced for information only. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone. Case studies are for illustrative purposes only.

Key takeaways:

  • Under the bonnet: insurance policy options to insure lifetime transfers
  • Understand the inheritance tax implications of failed lifetime gifts and the case for insuring potentially exempt transfers and chargeable transfers
  • An understanding of how taper relief works

A consideration of the inheritance tax (IHT) treatment of lifetime gifts and the insurance options available to mitigate the IHT effects of “failed” gifts

If a person makes a gift in their lifetime, this may have inheritance tax (IHT) implications. The gift may be exempt from IHT if, for example, it falls within the category of an exemption, such as the £3,000 annual gift allowance that we all have.

The gift may be chargeable to IHT immediately if, for example, it is a gift into a discretionary trust. Such a gift, or settlement, is referred to as a chargeable lifetime transfer (CLT).

The gift may be treated as exempt from IHT when made, but may become chargeable if the person making the gift dies within seven years of making it. Equally, should the person making the gift survive seven years, the gift becomes fully exempt. This type of gift (typically made directly to an individual or a bare trust) is a potentially exempt transfer (PET).

Download our article where we consider PETs in more detail, the solutions available and the wider impact of IHT.

Risk Disclaimer

This content is based on our understanding of legal and tax regulations and practice at the time of writing (October 2019). It has been produced for information only. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone. Case studies are for illustrative purposes only.