Save, make, understand money


Simple life policy oversight costing Brits thousands of pounds

Emma Lunn
Written By:
Emma Lunn

Thousands of beneficiaries of wills are unnecessarily paying inheritance tax (IHT) on life insurance policies.

Life insurance policyholders who fail to complete a simple form are leaving their families with an unnecessary IHT headache, according to NFU Mutual.

Under normal circumstances, the payout from a life insurance policy will form part of an individual’s estate and may be subject to IHT.

However, by writing a life insurance policy in trust – done simply by filling in a form from the insurer –  the proceeds from the policy can be paid directly to beneficiaries rather than an individual’s estate, meaning it will not be taken into account when IHT is calculated, and monies can be paid out quickly by trustees.

Sean McCann, chartered financial planner at NFU Mutual, said: “The prospect of paying inheritance tax on a life insurance policy is all too frequently a nasty surprise for thousands of bereaved families.

“Thankfully, remedying the situation couldn’t be simpler – by contacting their provider and completing a trust form, policyholders can potentially remove the threat of their loved ones facing a costly IHT bill.”

Figures from the Office for National Statistics show about 7,120 life policies worth more than £700m were caught in the IHT trap in 2015/16, with up to £280m paid in unnecessary IHT.