Life Insurance to Mitigate IHT Liabilities

Inheritance Tax and Insurance – The Rise of Life Insurance to Mitigate IHT Liabilities

The Rise of Life Insurance to Mitigate IHT Liabilities

Inheritance Tax (IHT) remains one of the most significant considerations for families planning how to pass on their wealth. From April 2027, the new rule changes will bring unused pensions into the scope of IHT. This could potentially lead to a 40% tax bill.

While trusts and gifting remain important tools for estate planning, one increasingly popular strategy for mitigating IHT exposure is the use of life insurance policies.

In this blog, we’ll explore how life insurance can help reduce the impact of IHT, where it fits alongside other planning strategies, and how our partners at Sphere Assured support clients in this area.

Why Consider Insurance for IHT Mitigation?

Life insurance doesn’t reduce the IHT liability itself. However, it can provide the liquidity needed to settle the bill without forcing beneficiaries to sell family homes or other assets. When you write the policy into a trust, the payout stays outside your estate. This strategy keeps it free from IHT and allows beneficiaries to receive the full amount to cover the tax liability.

This can be especially valuable for:

• – Families with illiquid estates
• – Estates containing assets that were previously IHT exempt
• – High-net-worth individuals seeking flexibility in their planning

Tom Wallace, Director of Tax at WTT Group, highlights how insurance is becoming an essential complement to traditional tax planning strategies:

“Life Insurance has always been a great planning tool for IHT mitigation but becomes much more important now given the changes to exemptions that are on the horizons.  Many more estates will now be caught within the IHT net and as with most things, planning can never start too early, particularly where life insurance may form a key part.”

Adding his perspective on how families can prepare for the upcoming changes, Wes McCranor, Director of Sphere Assured, explains:

“Right now, life insurance is the simplest and most future-proof way to protect your estate against inheritance tax, delivering guaranteed liquidity exactly when it’s needed, without relying on complex restructuring or future legislation.”

Introducing Sphere Assured

We work closely with Sphere Assured, specialists in delivering tailored insurance solutions for private clients, SMEs, and high-net-worth individuals.

What makes Sphere different is their meticulous medical due diligence process, which provides an additional layer of protection for clients by ensuring cover can be arranged with discretion and efficiency.

Sphere’s private client services are designed to:

• – Protect estates against tax liabilities
• – Support wealth preservation and succession planning strategies
• – Offer competitive premiums through bespoke medical due diligence

Commenting on the growing role of insurance in estate planning, Wes McCranor highlights the unique advantages it can offer:

“When it comes to inheritance tax planning, there are few solutions as simple as life insurance. Unlike many of the more complicated IHT mitigation strategies, a well-structured life policy provides immediate, tax-free liquidity at the exact point it’s needed — on death. This ensures that beneficiaries have the funds to settle the estate taxes without disturbing the family estate or forcing the sale of assets that hold cherished memories”.

Insurance vs. Other IHT Mitigation Strategies

Life insurance should be seen as part of a full rounded estate plan rather than a standalone solution. While gifting, trusts, and exemptions can help reduce the overall IHT bill, very few mitigation strategies will eliminate the full liability. Insurance ensures that whatever liability remains can be covered swiftly, without burdening your heirs.

By combining insurance with tax-led strategies, families can create a balanced approach that provides both efficiency and certainty.

Safeguarding Your Estate

With the 2027 IHT changes set to significantly increase exposure for many estates, life insurance offers a valuable way to ensure that loved ones aren’t left struggling to meet unexpected tax bills.

Your Guide to the New IHT Rules

Want to learn more? We’ve created an in-depth guide to help you understand the new IHT rules. This guide breaks down what it means for your estate, and how you can act now to protect your wealth.

Download our guide ‘Navigating the 2027 Inheritance Tax Changes on Pensions’ here.

Got some questions? Book a free 20-minute consultation with one of our advisors. Our experts can review your position and explore how insurance could support your family’s safeguard your wealth.