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<\/a>\nReducing Your Inheritance Tax Liability<\/strong>
\nBut there is a way to avoid this.\u00a0 If you write the policy into Trust while you are alive (in effect, giving the policy away while you are alive), the money does not go to your estate \u2013 so as you do not own the benefits of the policy you cannot be taxed on it. Inheritance tax is then only payable on the net value of the estate (not including the proceeds of the life insurance policy). A life insurance Trust does not pay tax on the payout from a life insurance policy.<\/p>\n
The answer then lies in having your life insurance policies written into Trust.\u00a0 If your policy is already written into Trust you will know as you will have appointed Trustees.\u00a0 It goes without saying that a Trustee should be someone you trust!\u00a0 This could be a friend, husband, wife or other family member.\u00a0 If you appoint a professional Trustee they will probably charge for their services so make sure any fees are clear to you.<\/p>\n
A Common Mistake<\/strong> Solving the Problem<\/strong> It is shocking to think that lack of foresight could lead to losing \u00a3200,000 in this example but it does highlight the importance of planning ahead.\u00a0 Of course, it is essential to consult a tax planning specialist so that you receive accurate advice \u2013 but this costs less than many people think.\u00a0 If you would like further advice or are looking for a specialist, we can offer suggestions. For Tax Guidelines relating to property, download our free guide here.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Inheritance tax is a contentious issue in the UK.\u00a0 If your net assets are valued at more than \u00a3325,000 when you die, any money you leave to anyone other than your husband, wife or civil partner, is taxed at 40%.\u00a0 This also applies to money from a life insurance policy, even if you have made … <\/p>\n
\nImagine this scenario \u2013 you are married and have a small property portfolio, with equity in this and your own home of \u00a3325,000.\u00a0 You also have life insurance of \u00a3500,000.\u00a0 On your death your wife will pay no Inheritance Tax as she was married to you.\u00a0 Your wife is now worth \u00a3825,000.\u00a0 When she dies and leaves everything to your children, they receive the first \u00a3325,000 free of tax.\u00a0 But the remaining \u00a3500,000 (proceeds of the life insurance policy) is taxed at 40% – a sizeable \u00a3200,000.<\/p>\n
\nIf the life insurance had been written into Trust, neither you nor your wife would have owned the proceeds. The policy would have been managed by the Trustees and both you and your wife, together with your children, would have been the beneficiaries. The Trustees are obliged to use the money for the benefit of the beneficiaries (it is called a Fiduciary Duty) and the family could have drawn money from the Trust when they needed it, rather than it being a part of the estate and so increasing Inheritance Tax liability.<\/p>\n