If you are considering providing gifts of monetary value to your family or heirs to potentially reduce your estates future inheritance tax (IHT) liability, life insurance policies can be really helpful to protect the recipient of the gift from incurring a liability to inheritance tax on the gift you give to them.
For lifetime gifts to be completely free of an inheritance tax liability, the person who gave it must survive at least seven years from the date of making the gift. In some cases this may be even longer, dependent on the type and size of the gift and who the beneficiaries are.
A life insurance policy can help by providing funds to help pay towards the cost of the possible IHT liability that this sort of planning can create should the insured person die before the value of the gift has fallen outside of their estate.
This type of policy is called a gifts inter vivos plan and is designed specifically for this purpose. The sum insured reduces each year in line with the sliding tax scale. These plans will generally be set up in trust so the policy payout does not just get added to the value of your estate.
Inheritance tax-planning is a particularly complicated area, so it's strongly suggested you seek professional advice from an expert. Our independent financial advisers here at Money Minder have many years of experience dealing with this subject. Contact us now.
