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Financial advisers are reporting a surge in the number of farmers taking out a form of type of life insurance which can wipe out an inheritance tax(IHT)bill. New IHT rules, set to come into effect from April 2026, have been criticised because theytarget farmers with businesses valued over £1million, although Chancellor Rachel Reeves defended the change saying it was needed to raise £520m to pay for Government spending.
But advisers have noticed an increase in demand among wealthy Brits, including farmers, for whole of life insurance cover. This type of insurance, which can be expensive, allows them to set money aside to pay off an IHT bill when they die.
An industry insider told The Daily Express that the number of farmers seeking to take out life insurance to cover a future inheritance tax liability had surged by ‘at least’ 50% with some protection advisers saying that queries from farmers anxious about making sure their families were not left with a huge IHT bill accounting for ‘most of their business right now’.
Wes McCranor, director of Sphere Assured, a protection specialist, said it had produced a booklet to help explain to farming clients how life policies “can provide liquidity for their estate to cover their IHT exposure”.
He said: “The largest enquiry we have received this year was for £60m, although the planning around this is still under way, and given the medical and financial underwriting required, there a lot of work to do in order to fulfil this request. The largest liability we have covered for our clients since last October was £4m – although this was only a portion of the possible tax liability as the remaining estate was already set up in various trusts for the children’s inheritance.”
In December Royal London also launched a life insurance product aimed at those wanting to protect their money from inheritance tax as demand increased, reported FT Adviser.
Naomi Greatorex, managing director of Health Protection Solutions, told the Daily Express she had seen huge surge in British families looking at taking out IHT-related life insurance.
She said: “I expect this to increase even more this year when some of the changes come into force.”
Greatorex said the earlier life insurance was taken out, the cheaper it would be, and that 40 and 50-year-olds may be able to pay as little as £60 a month.
A 60-year-old could expect to pay more, £81.55 per month, while a 65-year-old would pay £134.52 per month.
“Once you are over 70 it can go up to £234.72 per month or a 75-year-old may pay £420.53 a month.”
There were two ways life insurance policies can be written to cover an IHT bill explained Ms Greatorex.
“It can be taken out a a whole life single life, or joint life second death policy.”
In order to take out this type of life insurance you will have to estimate how much your assets are likely to be when you die.
“can take out a life insurance policy for all or part of your estimated IHT bill. Then you will need to have it written in trust which will ringfence the money from your estate, that means it is not subject to inheritance tax.
“You pay the monthly premiums when you are alive and when you die, the trustees, your beneficiaries, can use the proceeds to settle the IHT bill promptly.
Families can take out Gift Inter vivos insurance which is a seven-year term insurance taken out by wealthy individuals who feel they may not live another seven years and want to use the 7-year rule to give their children or grandchildren cash.
This type of life insurance gets cheaper, and if the person hasn’t died at the end of the seven years, then no IHT is due anyway.
This type of insurance is also written using trust law, so the money paid out will have to be paid into a tax-free or tax-friendly trust. If it is paid into the estate it then becomes taxable so subject to inheritance tax.
Alan Lakey a protection expert and adviser added: “An estate valued at £1.5m would mean a current IHT bill of £200,000. This assumes that each spouse/civil partner has a £325,000 IHT nil rate band plus an additional £175,000 property allowance each.
“Therefore in this instance you would make an assumption of future estate inflation based on their age, likely longevity and how the estate is set up, whether it is property or even investments.”
Inheritance tax is only paid when someone has died.
There’s normally no inheritance tax to pay if either:
- They have left less than £325,000
- Or they have left any cash or assets above £325,000 threshold to either your spouse, civil partner, a charity or a community amateur sports club
If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your tax threshold can increase to £500,000.
If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.
