Jones explains one way to mitigate the large tax sum is to use a life assurance policy to pay a lump sum on death to make up the shortfall presented by the tax bill.
Highclere's Alan Lakey adds: “Those that are building up a potentially taxable estate should consider a life insurance policy written in trust for their intended beneficiaries, which for those who are not married or in a civil partnership, could be their partner.
“This ensures that a worthwhile sum of money reaches the right people without being taxed and without delays due to obtaining probate or letters of administration.”
Adam Higgs, head of research at ProtectionGuru, says it is important to understand that when using life insurance, a person is protecting against the IHT liability when it is inherited, not the inheritance itself.
“Life insurance will generally be used in two distinct ways. The first is to protect against an IHT liability at any time where a whole-of-life contract will be used to cover the liability on a client's (or the second of a married/civil partnered client’s) death.”
The second way is to cover the potential IHT liability if the client dies within seven years, using the previously mentioned inter vivos policy.
Jones concludes: “The total IHT payable is the same but the money is received by different people and the liability falls on different people.”
Ruth Gillbe is a freelance journalist
