Welcome back to the final part of our planning with purpose blog series. In the previous blog, we covered term assurances; life insurance for the ‘what ifs’ of life. Now, let’s talk about the final stage of estate planning - Inheritance Tax (IHT).

Why is Inheritance Tax so important to consider now more than ever?

With new legislation from the UK Government planned for April 2026, agricultural and business property reliefs are being stripped back. Farm and business owners who used to have little or no IHT exposure may now face eye-watering bills. While the Government’s intention was to target the wealthiest estates, some smaller family farms and businesses may still find themselves impacted by IHT. So, even if you think your farm or business is of modest value, you may still need to take this into account.

Which Life Policies could help?

Term insurance

A seven-year term insurance policy can cover gifts you make in your lifetime because their value remains in your estate for seven years. If you die within those seven years, this policy pays out to cover the IHT bill. For example, you gift £250,000 and insure yourself for £100,000 (40% of the gift). Remember, if you haven’t gifted your annual gifting allowance of £3,000 this can be deducted from the value of a gift and be backdated by one year, reducing the amount of insurance that may require to be taken.

Gift inter vivos insurance

This is specifically designed for gifts where you gift an amount in excess of your available nil rate band (normally £325,000). If you die before the seven years are up, the insurance reduces from year three, as your IHT liability falls along with taper relief rules.

Whole of life insurance

This is the big one for many people. Whole of life insurance pays out when you die, providing a cash pot to pay IHT- no matter when. It can be seen as the financial equivalent of the ‘get out of jail free’ card for your beneficiaries.

Consideration should be given to writing these types of policies in trust for the life assured’s executors or beneficiaries so that the policy does not become assessable to IHT as well.

Whole of life insurance example

Meet the Fernie family: They have a farm worth £10 million. With the new rules, their assessable estate for IHT is £7.35 million (not including any residence nil rate band). The IHT liability is therefore now £2,940,000. The family want to keep their farm and worry about the prospect of having to sell to meet any IHT liability.

The Fernie family can take out a whole of life policy in trust to cover the IHT liability. On death, the policy pays out directly to the trust giving the beneficiaries cash to pay HMRC, avoiding the need to sell any assets or have any debt concerns front of mind for an extended period of time.

Who should consider these policies and what are the costs?

You should consider these policies if you meet any of the below points:

• If your estate is worth more than your combined nil rate bands.
• If you are making large gifts.
• If you are a farmer or business owner with additional agricultural or business reliefs who will be caught by the IHT propositions brought in from April 2026.

Ultimately, the older you are and if you have any medical conditions, the more costly these policies will be, but it may be worth having peace of mind without having to set up complex trusts and business structures. It is worth discussing these possibilities with a financial planner who can demonstrate the benefits of insurance, assess affordability, and can discuss how the payouts would compare to the likely premiums that will need to be paid over your lifetime. They will also be able to help decide if insurance will add value to the financial plan you have in place for your loved ones.

Inheritance tax is the ultimate plot twist in the subject of family wealth. But with the right planning, and potentially insurance, you can make sure your legacy is your business – not a tax bill.

Get in touch

For tailored advice always speak to a financial planner, and that is where our expert team can be on hand to help. Please don’t hesitate to get in touch with myself, a member of our Wealth team, or by filling out the short form below.