7 Ways to Minimise Your Inheritance Tax with Life Insurance

An essential part of estate planning is navigating the complexity of Inheritance Tax (IHT) to make sure your loved ones benefit fully from your legacy without having to pay a large tax bill. 

The Legacy Wills Company, with its extensive experience in estate planning and financial advisory, offers a strategic approach to managing IHT through life insurance. 

This guide explores how effectively structured life insurance can safeguard your estate’s value for your beneficiaries.

1. Deciphering Inheritance Tax (IHT)

Understanding IHT is the first step in effective estate planning. In the UK, IHT is levied on your estate’s total value upon death if it exceeds the £325,000 threshold. 

With rates generally at 40% above this limit, careful planning is required to minimise its impact.

2 The Strategic Use of Life Insurance in IHT Planning

Life insurance emerges as a pivotal tool in IHT mitigation, offering a lump sum that can address the tax liability directly. 

This financial safeguard ensures that your estate’s assets remain intact for your intended beneficiaries.

3. The Importance of Writing the Policy in Trust

To exempt the policy payout from your estate (and consequently from IHT), it’s essential to write the policy in trust. 

This setup directs the payout to your beneficiaries outside of the estate, offering both tax efficiency and expedited access to the funds.

4. Choosing Between Whole of Life Policy and Term Insurance

While a whole of life policy offers indefinite coverage, ensuring a payout regardless of when you pass away, term insurance provides a cost-effective alternative with time-bound coverage. 

Your choice between the two should align with your long-term IHT planning goals.

5. Calculating Adequate Coverage

Accurate calculation of the required cover involves estimating the potential IHT liability, taking into account various exemptions and reliefs. 

Collaborating with a financial advisor is crucial to tailor the coverage to your estate’s needs.

6. The Necessity of Regular Policy Review

Life’s milestones or legislative changes can influence your IHT liability and necessitate adjustments to your policy. 

Regular reviews ensure your estate planning remains aligned with your current circumstances and future aspirations.

7. The Value of Professional Guidance

Given the intricacies of IHT planning, seeking advice from professionals like The Legacy Wills Company is advisable. 

Tailored advice can navigate the legal complexities, ensuring compliance and optimization of your estate planning strategy.

How The Legacy Wills Company can help you

Life insurance, when strategically incorporated into your estate planning, offers a robust solution to mitigate the impact of IHT, ensuring your legacy is preserved for your loved ones. 

Early planning, coupled with professional guidance, paves the way for a well-secured financial future for your beneficiaries.

For bespoke estate planning solutions and to explore how life insurance can complement your IHT strategy, reach out to John Ireland at The Legacy Wills Company. 

For more information call us today on 0208 547 2583 and book a discovery call with one of our advisors.

Need to discuss your estate?

Book a free discovery call to learn more about how to protect your assets.

Book a discovery call
Download our FREE Estate
Planning Guide

Client Testimonial

“Having seen John of Legacy Wills present at a property event, it was clear he had both the breadth of knowledge and experience and also the ability to make a very dry subject both understandable and engaging. That’s a tough call when talking about Wills, Trusts and death. John produced Wills and POA’s for myself and my wife in a timely, effective and reasonable manner. I have subsequently recommended him to numerous colleagues and friends to cut out the jargon and challenges surrounding this critical protection, which is too often deferred or neglected.”

Dan Norman