Skip to main content

Inheritance Tax and Life Insurance

LifeSearch author John Rogers
2 min read

by John Rogers, Marketing Executive

See author bio

John is a Protection expert, having worked in our customer facing teams and best practice teams, and now is immersed in Protection Content and Marketing. See author bio

Guide last reviewed 4 Jan 2024

Two things are certain in life - ‘death and taxes’. Have you thought about how much money your children might have to pay to inherit your estate when you pass away?

Not all estates are large enough to incur Inheritance Tax, but this tax should be factored into your plans when you come to make your will. So that you can protect what’s yours, we at LifeSearch can arrange a policy that provides money to pay any potential tax bill.

What is Inheritance Tax?

When an estate transfers to your kids (or a beneficiary) the government will charge 40% in a levy called Inheritance Tax. This covers everything that you owned, for example houses, cars, jewellery and paintings. Last year, the government collected a record amount of £7.1 billion in Inheritance Tax receipts [1] from UK families estates alone.

There’s usually no Inheritance Tax to pay if the value of your estate is below the £325,000 threshold [2] or if you leave everything above the threshold to your spouse or civil partner or to an exempt beneficiary, such as a charity. Any Inheritance Tax incurred must be paid by the end of the sixth month after the person’s death, or HMRC will start charging interest. It can be quite problematic for family members.

Writing a life insurance policy ‘in trust’

Most life insurance policies will count as part of the estate unless your policy is written ‘in trust’. This doesn’t cost anything extra and you can do it when taking out your policy. A trust affects the manner of the payout in the event of your passing and is set aside to benefit a particular person or group of people that we refer to as the beneficiary. Until the beneficiary can benefit from the trust, for example until a child becomes 18, it is managed by a trustee such as your husband/wife or another relative. Usually, the payout from a life insurance policy will form part of your legal estate. Writing life insurance in trust basically means that the payout is paid to your beneficiaries and not to your legal estate. This will help to avoid going over the Inheritance Tax threshold because it won’t be taken into account when Inheritance Tax is calculated.

It also allows the probate process to be completed as quickly as possible, which is a legal process that confirms an executor’s authority to deal with and distribute your possessions. This can take a while but with a life insurance policy in trust, it can pay out before probate is granted.

Can I avoid my family having to pay Inheritance Tax?

Inheritance Tax isn’t always something you’ll be able to dodge but there are ways to reduce the financial impact, aside from a trust. If Inheritance Tax is something that you’re anticipating, you can dedicate a portion of your life insurance payout to pay off the tax bill.

This is something that can be arranged for you here at LifeSearch, saving your family having to sacrifice 40% of your assets and along with that, saving them quite a headache.




Compare & buy life cover quotes online - then put your policy into trust

We encourage all of our customers to place policies into trust wherever applicable. If you buy a policy that can be placed into trust we can help you do just that.

Get quotes & buy online
LifeSearch author John Rogers
John Rogers Marketing Executive
A ‘Searcher since 2015, John is a Protection expert having worked in our customer facing teams and best practice teams, and now is immersed in Protection Content and Marketing.
See all articles by John Rogers
article thumbnail image Tax & Finances

Life insurance trusts - they make sense

We think trusts are pretty cool! Find out our top three reasons why in this guide.

By Katie Crook-Davies, Protection Writer

6 min read
article thumbnail image Tax & Finances

Why You Should Put Your Life Insurance In Trust

If you haven’t put your life insurance in trust, it’s important to consider it.

By Katie Crook-Davies, Protection Writer

3 min read
article thumbnail image Tax & Finances

How to set up a trust for life insurance

Writing your life insurance into trust can help protect your pennies from the tax man, and more. Let us make it easy.

By John Rogers, Marketing Executive

3 min read

LifeSearch Limited is an Appointed Representative of LifeSearch Partners Limited, who are authorised and regulated by the Financial Conduct Authority. Calls may be monitored/recorded.