Life insurance is the new must-have in inheritance tax planning
Frozen thresholds and the coming pension tax shake-up are pushing families to look at life cover in a whole new way.
Inheritance tax has crept into the lives of more UK families over the past decade, thanks to frozen allowances and rising house prices. Now a fresh pressure point is emerging: from April 2027, unused pension pots will count towards your estate for IHT purposes, removing one of the most popular ways people had been sheltering wealth from the 40% tax.
A recent analysis by IFA Magazine highlights how this shift is already changing conversations about life cover. Advisers are increasingly recommending whole of life insurance, often written on a "joint life, second death" basis, to cover a foreseeable IHT bill. The logic is simple: if you know roughly what the tax is likely to be, you take out a policy sized to meet it, and that policy sits in a trust so the payout reaches your family outside the estate entirely.
Term assurance is also getting a second look for a different reason. If you have gifted assets to family members, those gifts can still attract IHT if you die within seven years. A term policy sized to mirror the IHT taper relief schedule (the tax reduces the longer you survive after a gift) means your family is not caught short during that window.
Digital trust tools are making it easier than ever to write a policy into trust at the point of purchase, which is good news for families who want to act now rather than wait.
Based on reporting by IFA Magazine (13 July 2026). Information only, not advice.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your individual circumstances and can change. The April 2027 pension change is subject to legislation. Please speak to a qualified, FCA-regulated adviser before acting.