The role of life insurance in inheritance tax

Tue, 07 Nov 2006

Inheritance tax can be a real sting. Having worked hard all of your life the taxman seems dead set on taking aware a substantial share of your wealth. However, as inheritance tax affects more of us, ways around footing quite such a large bill are becoming more common knowledge. Life insurance has a major role to play in reducing your inheritance tax liability.

The successful accountancy firm PriceWaterhouseCoopers recently said: "There was a perception that inheritance tax was for the rich. Now the realisation is that it can affect many more of us." With property prices soaring, many homeowners are finding themselves exceeding the inheritance tax threshold when all of the savings, investments, property and personal possessions are taken into account .

Being aware, making a plan, writing a will early and minimising your estate are all sensible inheritance tax plans. Considering a trust is another possibility for reducing the impact of inheritance tax. Life insurance can also cover part of an IHT bill. For instance, a whole-of-life insurance policy that is written in trust could provide a lump sum of cash upon the death of the policyholder. When the policy matures (in the event of death) the proceeds can be used to settle the inheritance tax bill. This type of life insurance policy has many tax benefits.
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