The Intermediary –- May 2026 - Flipbook - Page 18
P RO T E C T I O N
In focus
The increasing need
for wealth protection
nheritance Tax (IHT)
continues to be one of the
UK’s most contentious taxes
as more estates fall within
its reach. Frozen allowances,
rising asset values and
legislative reforms mean that many
families who never expected to face
IHT are now being caught in the net.
I
funds and death benefits will be
included in the value of a person’s
estate and subject to IHT. It’s estimated
this creates a new or increased IHT
liability for 49,000 estates1 initially.
Until now, conventional wisdom
has been to leave those pensions alone
because of their IHT-free status, but
this will no longer be the case.
Why more families are
Certainty and liquidity
being caught by IHT
Frozen nil rate bands
The IHT nil-rate band (NRB) has been
frozen at £325,000 since 2009, and
the Residence NRB frozen at £175,000
since 2020, and both will remain so
until at least 2031.
As residential property prices and
stock market values continue to rise
while the tax thresholds remain
static, even middle-income families
are becoming exposed to IHT due to
fiscal drag.
Business and Agricultural
Property Relief
Since 6th April this year, only the
first £2.5m per person of combined
qualifying business and agricultural
assets can benefit from full IHT relief.
Amounts above £2.5m receive 50%
relief and are liable to an effective 20%
IHT rate with many business owners,
landowners and farming families now
facing substantial new IHT liabilities
as a result. In addition, investments
in AIM shares now only receive 50%
relief regardless of value.
Inherited pensions and
death benefits
Arguably the biggest change comes in
from 6th April 2027, when pension
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The Intermediary | May 2026
The personal representatives (PRs) of
an individual’s estate are responsible
for paying IHT within a statutory
six-month period, aer which late
payment interest starts accruing.
The Catch-22 situation is that the
PRs can’t access the majority of assets
within a deceased’s estate to pay the
IHT before probate is granted.
This raises questions PRs must have
an answer for – do they have sufficient
funds of their own that they are
willing to use to cover the IHT? If not,
they could borrow, but at what cost?
They’ll still face uncertainty over how
long probate will take to be granted,
and therefore how long it will be until
the loan can be cleared.
Life insurance in trust addresses this
by providing certainty and liquidity
for the personal representatives to be
able to quickly sele any IHT due.
Wealth protection in practice
There are three life insurance products
that can be used to cover any scenario
in which an IHT liability exists.
Level Term
Available on a single life (SL) or
joint-life second death (JLSD) basis
as required, Level Term policies
can be used to cover temporary IHT
liabilities – namely those which will
cease within a certain timeframe,
for example:
The residual estate IHT liability
when the client(s) plan to erode
ANDY ROBERTS
is head of specialist
propositions at Zurich UK
the IHT liability by a certain age
or date, such as by giing away
their assets or investing into
Business Relief (BR) qualifying
investment schemes.
The IHT liability on lifetime gis.
Gis over the donor’s available NRB
will be liable to IHT for seven years,
payable by the recipient, with the
effective rate of IHT reducing by
20% per year between years three
and seven. A series of five Level
Term policies can be used to create
a ‘Gi Inter Vivos’ structure, which
mirrors the reducing IHT liability.
The liability on a BR qualifying
investment, for example an
Enterprise Investment Scheme
(EIS). These investments are
generally free of IHT aer two years
(subject to the £2.5m allowance), so
will need cover for the initial period.
Whole of Life (WOL)
Whole of Life policies are also
available on a SL or JLSD basis, and
are most suitable for covering a
permanent IHT liability, namely on
the residual estate when the client(s)
have no intention to gi or invest
away their IHT liability during
their lifetime.
