Yesterday I published a simple article about employers being able to pay for assurance that pays if you die when employed (in service). You can read it from this link
Some people need to take out assurance for themselves. Maybe they want it to stay in place longer than they want or can stay in service.
Whole-of-life cases pay out when the policyholder dies and are often used to cover a future tax liability.
Mary McDougall and Emma Dunkley tell us..
The number processed by wealth manager Evelyn Partners rose by 66 per cent last year compared with 2025, while Royal London’s insurance arm sold 50 per cent more of the policies over the same period.
If you put the policy under the right kind of trust, it will pay out – outside your estate.
“The size of the sums assured has increased dramatically,” said Ian Dyall, head of estate planning at Evelyn Partners. “We are currently helping a number of clients with liabilities in excess of £10mn.”
Some of these assurances will have a big sum assured!
If you want a tax free pay out independent of your employer you can’t individually get tax relief on your policy, If you want your personal pension pot to pay your bill you get tax relief on the way in (and investment growth) but your estate will have to pay inheritance tax on its pay-out.
Put like this, it looks like the people who are winning out of all this are insurance companies. They write the whole of life policies (and some term assurance to cover the period till the gift tax ratchet wears out). They write a lot of DC pension business and of course they underwrite death in service assurance.
“Inheritance tax planning has absolutely exploded,” said Barry O’Dwyer, chief executive of Royal London, adding that “by far” the easiest way to plan for inheritance tax was to buy life insurance that pays out on death.
While there are a few super-rich people who leave a £10m IHT bill behind them, the amounts of people who have not spent their pension pot is higher
The government estimates its proposals will bring about 1.5 per cent more estates within the scope of death duties in 2027-28, on top of the 4 per cent that already exceed the £325,000 nil-rate band, which can rise to £500,000 where a property is passed on. The move is forecast to raise £1.5bn a year for the Treasury by 2030.
Higher, but like most of the tweaks to pension tax, not that big. Like the row about “mandation”, this is more about principle than practice.
Perhaps the best thing that the rich should do is buy an annuity , invest in a CDC pension or exchange their pot for a public sector index-linked pension, if they are newly into service in the NHS, LGPS, Civil Service or (dare I say it) , the Pensions Regulator.
Your pension could pay your life insurance contributions each month. Better still your employer’s death in service benefit, could mean your estate could makes a lot out of your passing with the whole of life and death in service giving your beneficiaries a bonanza.
“Life insurance has exploded!”
Does anyone remember the Death Duty paid by a spouse? And use of the Married Womans Property Act?
You will find that features such as Renovability Clauses and back to back Annuity /Whole Life will be revived. Service extended to 75 or beyond if the 75+ income tax situation persists
The Timeline of the Change
• March 1974: Dennis Healey, then Chancellor of the Exchequer, announced the tax in his Budget statement to close loopholes in the existing system.
• March 13, 1975: CTT officially took effect for transfers made on or after this date.
• 1986: CTT was itself replaced by the modern Inheritance Tax (IHT) under the Finance Act 1986.
Denis Healey and the government at the time viewed Estate Duty as a “voluntary tax.” This was because it only taxed assets passed at the time of death; people could easily avoid it by gifting their wealth to heirs while they were still alive.
Capital Transfer Tax was designed to be much more comprehensive by:
1. Taxing lifetime gifts: It applied to transfers of wealth made during a person’s life, not just those triggered by death.
2. Cumulative tracking: It tracked the total value of gifts a person made throughout their entire lifetime to determine the tax rate.
Nigel Lawson “rebranded” and modified it into Inheritance Tax. This new version reintroduced the “Potentially Exempt Transfer” (PET), which allows most lifetime gifts to be tax-free as long as the giver lives for another seven years. I believe that the concept of gifting regularly without detriment to the donars standard of living came in.
Maybe we will get a section 72 type easement as the do in Ireland to facilitate liquidity through a WOL
Based on the latest 2024–2026 data and Office for National Statistics (ONS) life tables, the proportion of people who die on or before their 75th birthday is approximately 22% so death in service is a minority term gamble that fails for the majority especially women.
Dust off your old sales courses the past is about to repeat.
I sold a Friends Provident WOL to Denis to give added liquidity at the right time.
And Denis lived to a ripe old 98, living five years after his wife died.