How To Make Your Insurance Tax Efficient — Financial Advice

Personal Finances

When it comes to planning your family’s financial future, it makes good sense to take every possible step to protect their standard of living. So if you’ve gone to all of the effort of putting the right policies in place, it would be a real shame if a sizable proportion ended up in the tax man’s pockets.

But this is unfortunately what often happens, with more than half a billion pounds every year being paid in inheritance tax (IHT) from life insurance policies.

One solution you could consider to make sure this doesn’t happen, is putting your policy into a trust. Taking out life insurance within a trust makes the policy exempt from IHT if you die as it places it outside of your estate.

What is a trust?

Under normal circumstances, the pay-out from a life insurance policy would form part of your legal estate, and may therefore be subject to inheritance tax. The threshold per individual for inheritance tax in the UK is £325,000. Tax is payable at 40% on any part of an estate above this level.

life-insurance policy

A trust allows you to set aside an asset (in this case the policy) to benefit a specified person or people (the beneficiaries). The asset is managed by a trustee or trustees until such time as the beneficiary is intended to benefit.

By writing a life-insurance policy in trust, the proceeds from the policy can be paid directly to the beneficiaries rather than to your legal estate, and will therefore not be taken into account when inheritance tax is calculated. This means the value of your estate may not move above the threshold, depending on your circumstances.

Writing a policy in trust also means payment to your beneficiaries will probably be quicker, as the money will not go through probate. This is a legal process which confirms an executor’s authority to deal with your possessions.

Does it cost extra?

No, it shouldn’t do. Your insurance provider should be able to provide you with this option for free when taking out the policy. Some existing life policies can also be transferred into trust.

financial advisers

In the first instance, seek the advice of an independent financial adviser. Quantum Advisers offers expert independent advice across a range of financial products and services and could save you £££s.

To get a full analysis of your needs and ensure you have the best all round protection for you, your loved ones and your business, contact us today on 020 7562 5771 for a free consultation.

Next time — When should you review your policies?
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