Using life insurance in inheritance planning

A consideration of the inheritance tax (IHT) treatment of lifetime gifts and the insurance options available to miti…

March 2021

Barry Foster

Vice President, Strategic & Technical Sales

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30 MINS STRUCTURED CPD

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This content is directed only to persons having professional experience in matters relating to personal investment (investment professionals) and should not be distributed to anybody else. It has been prepared for general information purposes only. It does not constitute advice (whether investment, legal, regulatory, tax or otherwise) provided by BMO Global Asset Management (EMEA) (BMO). Certain content in this document is based on our own reading of legislation, regulation, or guidance issued by a government or regulatory authority, as at the date of publication, which is subject to ongoing change. Tax treatment is based upon individual circumstances. BMO gives no warranty or representation, whether express or implied, that such content is up to date, complete, or accurate.

Investment professionals in receipt of this document should not rely on any of its content. They remain solely responsible for advising their underlying clients in accordance with their own legal and/or regulatory obligations and for taking their own independent advice as they determine is necessary.

To the extent lawful, BMO excludes all responsibility and associated liability for any loss or damage suffered by any recipient of this document who chooses to rely on its content, whether occurring in contract, tort (including negligence), breach of statutory duty, or otherwise, even if foreseeable.

Key takeaways:

  • Under the bonnet: insurance policy options to insure lifetime transfers
  • Understand the inheritance tax implications of failed lifetime gifts and the case for insuring potentially exempt transfers and chargeable transfers
  • An understanding of how taper relief works

A consideration of the inheritance tax (IHT) treatment of lifetime gifts and the insurance options available to mitigate the IHT effects of “failed” gifts

If a person makes a gift in their lifetime, this may have inheritance tax (IHT) implications. The gift may be exempt from IHT if, for example, it falls within the category of an exemption, such as the £3,000 annual gift allowance that we all have.

The gift may be chargeable to IHT immediately if, for example, it is a gift into a discretionary trust. Such a gift, or settlement, is referred to as a chargeable lifetime transfer (CLT).

The gift may be treated as exempt from IHT when made, but may become chargeable if the person making the gift dies within seven years of making it. Equally, should the person making the gift survive seven years, the gift becomes fully exempt. This type of gift (typically made directly to an individual or a bare trust) is a potentially exempt transfer (PET).

Download our article where we consider PETs in more detail, the solutions available and the wider impact of IHT.

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Risk Disclaimer

This content is directed only to persons having professional experience in matters relating to personal investment (investment professionals) and should not be distributed to anybody else. It has been prepared for general information purposes only. It does not constitute advice (whether investment, legal, regulatory, tax or otherwise) provided by BMO Global Asset Management (EMEA) (BMO). Certain content in this document is based on our own reading of legislation, regulation, or guidance issued by a government or regulatory authority, as at the date of publication, which is subject to ongoing change. Tax treatment is based upon individual circumstances. BMO gives no warranty or representation, whether express or implied, that such content is up to date, complete, or accurate.

Investment professionals in receipt of this document should not rely on any of its content. They remain solely responsible for advising their underlying clients in accordance with their own legal and/or regulatory obligations and for taking their own independent advice as they determine is necessary.

To the extent lawful, BMO excludes all responsibility and associated liability for any loss or damage suffered by any recipient of this document who chooses to rely on its content, whether occurring in contract, tort (including negligence), breach of statutory duty, or otherwise, even if foreseeable.