Nearly 7,500 families paid inheritance tax on life insurance by failing to put their policies into a trust, says NFU Mutual.
Of the 31,500 estates that paid inheritance tax in 2022/23, nearly a quarter (7,458) included life insurance policies. These policies were worth a total of £865 million, meaning up to £346 million of inheritance tax may have been paid on them.
However, if the policies were written into trust, they would not normally form part of the deceased’s estate and would therefore not be liable for inheritance tax.
Sean McCann, chartered financial planner at NFU Mutual, said: “Many people buy life insurance without advice, so aren’t aware that if they don’t put the policy in trust it’s included in their estate and could end up being taxed at 40%.
“Putting life insurance policies into trust is relatively straightforward. If you have life insurance and it isn’t in trust, phone your provider and ask for a trust form.”
McCann said for those in good health when they put their policies into trust, there are normally no tax implications. However, if someone is seriously ill and dies within seven years, HMRC could include it within the estate and charge inheritance tax.
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