Protect your life policies from inheritance tax

Collated data indicates that in the year 2003/4 almost 11,000 policies worth a total £597m were liable to Inheritance Tax, which may have risen to as much as £960m during the current tax year.

A life insurance policy may pay a considerable sum of money when you die, taking the value of your estate over the threshold where inheritance tax may be payable, even though you may not have considered this to form part of your estate. For example, take a married couple with assets worth £800,000, including a life insurance policy worth £400,000, which has not been written into trust. On the first death, the assets would pass to the survivor free of any tax but on second death, even if the full transferable allowance is available, anything over £650,000 would be subject to Inheritance Tax at 40%. In this instance the £150,000 over the threshold would be subject to an £60,000 bill. However, this would have been reduced to zero if the policy had been written in trust.

Aside from these considerable tax advantages there are also other benefits that make placing a life policy in trust an attractive proposition. The sums payable from the policy are paid out quickly and to the people you wish to benefit, without the requirement for a Grant of Representation. Obtaining a Grant can take several months, during which your family could be placed in the difficult position of making ends meet while also dealing with the funeral costs and other expenses associated with the administration of your estate.

Although Life insurance policies can be purchased through a variety of routes, in order to ensure that the product is suitable for your needs and is correctly written into trust it would be prudent to take both legal and financial advice before making a decision. Our team of solicitors and Independent Financial Advisor would be happy to help.

For further information please contact Elliot Lewis.