Overview
Inheritance tax planning can present significant challenges for clients looking to preserve family wealth across generations. Following recent changes to reliefs announced by the government in 2024, many individuals with large estates are now taking proactive steps to review their succession plans and mitigate future tax risks.
In this case, we were introduced by a professional accountant who was assisting a client with their inheritance tax strategy. The client held a long-standing family estate and had begun making significant gifts to their children as part of their broader estate planning approach.
Client Profile
The client had started to make gifts from their estate to their three children, aiming to transfer wealth during their lifetime. However, these gifts were classified as Potentially Exempt Transfers (PETs), meaning they would remain subject to inheritance tax if the client were to pass away within seven years of the gifts being made.
Following a detailed review, the client’s accountant identified a substantial potential inheritance tax liability of approximately £2.5 million, which would fall on the recipients of the gifts if the client were to die within that window.
The Challenge
The client needed a solution to safeguard their children from this tax exposure, ensuring the gifts could remain intact, regardless of what happened during the seven-year taper relief period.
This required:
- Working closely with the client’s accountant to accurately calculate the liability.
- Sourcing appropriate life cover to match the tax exposure.
- Ensuring the policy would be both cost-effective and structured to provide immediate payment to beneficiaries if needed.
Our Solution for Inheritance Tax Planning
In collaboration with the accountant, we confirmed the level of cover required and arranged suitable term life assurance policies. These were designed specifically to cover the seven-year taper period during which the inheritance tax liability would apply.
To ensure efficiency and simplicity, we arranged for the policies to be written into trust. This guaranteed that, in the event of the client’s death, proceeds from the policy would pass directly to the beneficiaries without unnecessary delays or further tax complications.
By integrating life cover as part of the overall inheritance tax planning strategy, we ensured that the family’s wealth transfer plans would be protected, regardless of unforeseen events.
We also supported the client throughout the underwriting process, facilitating medical assessments and gathering the necessary documentation to enable a swift decision from the insurer.
The Outcome
The client now has complete peace of mind that their estate planning strategy is protected. Should they pass away within the seven-year window, their children will receive a payout sufficient to cover any inheritance tax due on the gifts, preserving the family’s financial plans and legacy.
This case demonstrates how well-structured life cover, combined with specialist advice, can effectively safeguard intergenerational wealth transfers from unexpected tax liabilities.
This is a case study and not indicative of typical results. Past performance is not necessarily representative of future results. This information is for general purposes only and does not constitute financial advice. Please seek professional advice before making any financial decisions.
Please note: tax treatment is based on individual circumstances and may be subject to change in the future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. Please also note: the Financial Conduct Authority does not regulate will writing, inheritance tax planning, and trust planning.
