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The wealthy in Britain are turning to life insurance coverage to cut back the ache of surprising inheritance tax payments following a contentious overhaul of the system within the autumn Price range.
“Each market has its day within the solar. Life insurance coverage is having a second,” stated Holly Hill, affiliate director at insurance coverage dealer John Lamb Hill Oldridge, including that she had seen “a deluge” of recent insurance policies taken out by property homeowners following the Price range in October final 12 months.
John Lamb Hill Oldridge stated it had beforehand been writing new life insurance coverage insurance policies for 30 wealthy particular person purchasers at anyone time, however because the tax reforms have been introduced, the quantity had gone as much as 110.
In Rachel Reeves’ first Price range as chancellor, she introduced reforms to agricultural property aid (APR) and enterprise property aid (BPR). On account of the modifications, individuals with massive estates or corporations that had beforehand been exempt pays inheritance tax at 20 per cent on belongings above £1mn from April 2026.
Reeves additionally confirmed the abolition of the non-dom regime, which allowed British residents who declared their everlasting dwelling as being abroad to keep away from paying UK tax on international earnings and beneficial properties.
There is no such thing as a determine for what number of wealthy people have taken out life insurance coverage cowl and the way a lot they’ve insured in opposition to. However Hill stated her firm had insurance policies protecting £3.5bn, which represented inheritance tax on belongings of £8.75bn.
Individuals are taking out each fixed-term insurance policies, which cowl them for a set interval of their life, and whole-of-life cowl, advisers stated.
Life insurance coverage insurance policies are held in belief and will be an efficient means of settling the IHT invoice of an property. Each kinds of coverage pay out within the occasion of loss of life, guaranteeing heirs should not compelled to promote belongings shortly to pay the UK tax authority inside six months of loss of life.
Hill stated that former non-dom purchasers who had moved abroad however saved their UK property had thought: “I’d as nicely simply slap an insurance coverage coverage on my home in Kensington . . . after which I can simply be free overseas and never fear,” about their heirs struggling to pay a future IHT invoice, as this may be coated by their coverage.
David Gregory, a senior associate at 1291 Group, an insurance coverage advisory enterprise for rich households, stated there had been “a large improve in demand” to fulfill new tax liabilities.
There had been indications of recent demand from early 2024, when then-chancellor Jeremy Hunt introduced he wished to abolish the non-dom regime, which gave individuals safety from IHT on non-UK belongings.
Catrin Harrison, a associate at legislation agency Charles Russell Speechlys, stated: “Beforehand, we didn’t work with the insurance coverage trade a terrific deal; we might construction fairly good safety, however now we’ve got people who thought their non-UK wealth was protected and it’s immediately not.”
Harrison stated life insurance coverage “will be surprisingly good worth”.
If a non-dom had been paying the £90,000 annual price to make use of the tax-favourable “remittance foundation” below the earlier regime, they may now be spending it on inheritance-tax safety as an alternative, she stated.
Those that have determined to stay within the UK will see their worldwide belongings doubtlessly subjected to the usual charge of inheritance tax at 40 per cent.
The Treasury forecast that ending the non-dom system would herald £12.7bn by the 2029-30 tax 12 months, whereas the change to APR and BPR would increase £1.8bn.