I’m pleased to see the numbers of the wealthy taking out life insurance on themselves and ageing parents is increasing fast. Keeping estates intact is a worthy objective and diverting some of the spare cashflow into insurance paying out on early death is a good way to do it. Hoarding pension pots to cheat the taxman/woman is not.
If you had told me when I was young to save into a pension so I could hand over my property to my kids I would have laughed at you. I still laugh at those who complain that Rachel Reeves changes to pension taxation to deny this fraud of tax-payers is unfair. It should never have become a tactic of wealth management. It is one of the many unforeseen developments of “pension freedoms”. Pots should buy pensions not avoid inheritance tax.
So why insurance is legitimate
There is a view that it isn’t – as this woman explains. I don’t agree with liquidation to pay tax where the illiquid assets are important to a family. The house, the farm, the business , even the intellectual property of a family cannot always be liquidated without great trouble within the family and a sense of loss that is real.
The difficulty for those with assets they cannot liquidate but belong to the family has become more important to protect of late. Here the life insurance premium is just a means of pre-paying a tax that cannot be avoided, the insurance policy will allow the farm, home or business to pass across generations in a planned way and where a gift or liquidation doesn’t work , insurance – fixed term or whole of life, is an effective and prudent way of going about protecting what families have built up.
In Rachel Reeves’ first Budget as chancellor, she announced reforms to agricultural property relief (APR) and business property relief (BPR). As a result of the changes, people with large estates or companies that had previously been exempt will pay inheritance tax at 20 per cent on assets above £1mn from April 2026.
There is a third area where the laws are changing. The “non-dom” regulations gave the wealth a way round IHT by moving abroad
Reeves also confirmed the abolition of the non-dom regime, which allowed British residents who declared their permanent home as being overseas to avoid paying UK tax on foreign income and gains.
There is no figure for how many rich individuals have taken out life insurance cover and how much they have insured against. But Holly Hill of brokers John Lamb told the FT her company had policies covering £3.5bn, which represented inheritance tax on assets of £8.75bn.
People are taking out both fixed-term policies, which cover them for a set period of their life, and whole-of-life cover, advisers said.
Life insurance policies are held in trust and can be an effective way of settling the IHT bill of an estate. Both types of policy pay out in the event of death, ensuring heirs are not forced to sell assets quickly to pay the UK tax authority within six months of death.
Hill said that former non-dom clients who had moved overseas but kept their UK property had thought:
“I might as well just slap an insurance policy on my house in Kensington . . . and then I can just be free abroad and not worry,”
about their heirs struggling to pay a future IHT bill, as this would be covered by their policy.
Catrin Harrison, a partner at law firm Charles Russell Speechlys, said:
“Previously, we didn’t work with the insurance industry a great deal; we could structure pretty good protection, but now we have individuals who thought their non-UK wealth was protected and it’s suddenly not.”
Harrison said life insurance “can be surprisingly good value”. If a non-dom had been paying the £90,000 annual fee to use the tax-favourable “remittance basis” under the previous regime, they could now be spending it on inheritance-tax protection instead, she said.
The tax authorities will get the insurance policy’s protection and the wealthy will not be hit by difficult bills when they are grieving.
I don’t often use this blog to express sympathy for the wealthy and I not that there are already comments against what the FT are writing , saying that too much attention is being paid to the rich and especially to the non-dom tax refugees.
I think this is a stupid point of view. We need to get non-dom sorted and articles like the one I’ve quoted from today are responsible and welcome.
Taking out life insurance to pay IHT bills is different to abusing pension taxation . It is both prudent and sympathetic to future generations.