Adam’s Technical – Inheritance Tax Planning

Adam’s Technical – Inheritance Tax Planning

I last wrote a piece for this mailshot regarding using a protection policy to meet an Inheritance Tax (IHT) liability over ten years ago. I thought given Craig’s article now would be a timely reminder.

If an individual’s total estate is valued at under £325,000 no IHT is payable on death. This figure has not changed for many years and is now fixed until at least April 2026. The Residence Nil Rate Band (RNRB), introduced in April 2017, provides an additional IHT free amount of up to £175,000 depending upon the value of the home. Therefore, an individual with an estate under £500,000 would not normally have to pay IHT. This figure is £1 million for a couple. A tax charge of 40% is normally due on the amount above the IHT threshold.

One way to meet an IHT liability is to set-up a guaranteed Whole of Life plan. An amount is selected at outset which is then paid on death. The amount chosen can meet all or part of the IHT bill depending upon affordability. The premium is guaranteed not to change unless automatic increases are built into the amount of cover.

The younger an individual is when this type of plan is set-up the better value for money it represents (see below). The sooner conversations take place with relatives regarding any possible future inheritance the earlier a plan can be established.

The table below provides an indication of the premium payable at set ages on standard rates which is subject to medical underwriting. These figures are based on an amount payable on death of £100,000, a spouse 3 years younger, both non-smokers and the benefit is payable on second death.

Individual’s AgeGuaranteed Monthly Premium
(These figures are only a guide)

As you can see the monthly premium increases with age. The premium at age 30 is £57.85 per month or £694.20 per annum. If the second individual dies at age 90 the total premium paid is £41,652 for a guaranteed pay out of £100,000.

If you would like to speak regarding Inheritance Tax planning and the options open to you, please contact your Adviser.