Press release: January 2008

Nearly £1bn in Inheritance Tax (IHT) contributions could be saved if taxpayers only wrote life policies in trust, according to recent estimates from life insurer, Skandia.

According to Henry Hayden, an Independent Financial Adviser with LB Group, the filling in of a simple form could make all the difference to thousands of people every year. When a life insurance policy pays out, it can often substantially increase the value of the estate of the deceased, which means that it qualifies for Inheritance Tax.

"A trust form is no more than four pages long and doesn´t take long to fill in at all. Yet, it means that the proceeds of life insurance policy are then excluded from the overall estate of the deceased. This in turn can dramatically reduce Inheritance Tax liability," explained Henry.

"The other clear benefit is that writing a policy in trust ensures that payment is made quickly and to the right people. Delays all too often arise, whether the estate qualifies for IHT or not," he added.

Henry explained how it might impact on a married couple with £800,000 worth of assets, including a life insurance policy worth £200,000. "On the first death of one partner, the assets pass to the surviving partner tax-free. On the death of the second partner, anything over £600,000 would be subject to IHT at 40 percent," he said. "The £200,000 above the threshold would be subject to a £80,000 IHT bill. However, if the policy had been written in trust, it is likely there would be nothing to pay."

Over 2003 – 2004, the period for which the latest data is available, almost 11,000 insurance policies worth a total of £597m were liable for IHT. According to calculations from life insurer, Skandia, this figure is likely to be £960m within the current 2007-2008 tax year.

Life insurance can be purchased through a variety of routes, including the internet, independent financial advisers or even the shelves of supermarkets. It should be possible to write a life insurance policy in trust no matter how you purchase it, but by opting for an independent financial adviser individuals are far more likely to buy a policy suitable for their needs with the appropriate trust arrangement put in place.