Planning to Protect Your Family from Inheritance Tax
For many families, making a lifetime gift is about more than tax planning. It is about helping children at the right moment, supporting their future, and seeing the benefit of that gift during your lifetime.
However, even when a gift is made with the best intentions, inheritance tax can still create uncertainty. If you pass away within seven years of making a significant gift, inheritance tax may still be payable, potentially placing a financial burden on those you were trying to help.
The Objective
In this case, a client in her late seventies chose to gift £3 million to her children. The decision to reduce the value of her estate also created a potential inheritance tax liability of up to £1.2 million during the seven-year PET period.
While this liability would reduce over time under taper relief, the concern was not theoretical. If the tax became payable, her children could be forced to find a large sum of money at short notice, potentially requiring the sale of property or long-held investments.
Her priority was simple and deeply personal: to ensure her generosity did not become a source of stress or financial pressure for her family.
The Approach
To remove this uncertainty, we introduced a life insurance solution designed specifically to support the gifting strategy.
A decreasing term life insurance policy was arranged for the seven years following the gift. The policy started at £1.2 million and reduced each year in line with the inheritance tax taper relief rules, ensuring the level of cover closely reflected the actual risk at every stage.
This meant the family would have access to funds if inheritance tax became payable, without the client paying for unnecessary cover as the risk reduced over time.
The Challenge
Securing life insurance later in life can feel daunting, particularly where there are existing medical conditions. In this case, the client had ongoing neurological and mobility challenges, which limited the number of insurers willing to offer cover.
By working closely with specialist underwriters and presenting a clear and detailed picture of the client’s health and financial position, we were able to secure inheritance tax protection that aligned with her objectives.
The Solution
The life insurance policy ensured that, if inheritance tax became due, funds would be available immediately to meet the liability.
This protected the family from difficult decisions at an already emotional time, avoided forced asset sales, and ensured the client’s planning intentions were carried through exactly as she had hoped.
This approach enabled us to:
- Provide immediate liquidity to meet inheritance tax without disrupting family finances
- Match insurance cover precisely to the reducing tax exposure
- Reduce the risk of selling assets or borrowing under pressure
- Deliver peace of mind that generosity would not create unintended consequences
Considering a Lifetime Gift?
If you are thinking about making a significant lifetime gift, or have already done so, it is important to consider how any inheritance tax exposure would be funded during the seven years.
Life insurance can play a valuable role in protecting your family, preserving your intentions, and creating certainty around future outcomes.
Professional advice can help ensure your gifting strategy supports your family in the way you intend, both today and in the years ahead.
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.
