Planning your estate is challenging at the best of times. Knowing how to mitigate your liabilities while ensuring your loved ones are cared for takes proper planning and the right tools. The 2024 Autumn Budget Statement announcements could create significant and lasting challenges for rural businesses of all sizes. Under the Chancellor’s proposed changes, from April 2026, IHT reliefs available to farms and family businesses will be restricted.
Additionally, Business Property Relief (BPR) will be restricted to 50% for all shares designated as ‘not listed’ on a recognised stock exchange, such as AIM, from April 2026. One such tool that is receiving attention is whole-of-life cover. In addition to being a standard life insurance product, it offers unique benefits that can help individuals protect their legacies while addressing IHT concerns
WHAT IS WHOLE-OF-LIFE COVER?
Whole-of-life is a life assurance product designed to provide peace of mind. Unlike term life insurance, which only offers cover for a fixed period, whole-of-life cover guarantees a payout whenever the policyholder passes away – whether that’s next year or decades into the future. This means the policy lasts for the entirety of your life, ensuring that your beneficiaries, such as your children or loved ones, will receive the agreed-upon payout. This reliability makes whole-of-life cover particularly valuable for estate planning purposes, especially when considering tax liabilities.
MANAGING IHT LIABILITIES WITH WHOLE-OF-LIFE COVER
Inheritance Tax is charged at 40% on estates valued above the IHT threshold, currently set at £325,000 in the UK, extended to 2030. This figure often includes the value of your home, savings and investments, making it easy for estates to exceed the threshold and incur significant tax liabilities. A whole-of-life cover policy can be set up within a trust, which is particularly advantageous when tackling IHT. The payout remains outside your estate if the policy is placed in an appropriate trust. This means beneficiaries can use these funds to settle any IHT obligations without dipping into their inheritance or liquidating other assets. This strategic structure helps maintain the integrity of the estate while easing financial burdens.
LIFE EXPECTANCY MUST BE CONSIDERED
When determining the appropriateness of whole-of life cover, several factors come into play. These include your age, health, lifestyle and the size of your estate. Most importantly, life expectancy must be considered – policies are most cost-effective when individuals live significantly beyond the average life expectancy, as this spreads premiums across many years. Choosing whole-of-life cover isn’t a decision to be taken lightly. It’s essential to assess whether the policy’s benefits outweigh its costs. For example, if your IHT liability is substantial due to owning high value assets or property, whole-of-life cover can be a crucial part of your financial strategy. Similarly, you’ll need to weigh the premiums against your budget and personal circumstances.
STABILITY AMID UNCERTAINTY
One of the most compelling benefits of whole of-life cover is its stability. We live in an era of fluctuating taxation policies, and future budgets could bring changes to IHT thresholds or rates. However, a whole-of-life policy isn’t influenced by such adjustments, offering a dependable safeguard for your estate. This future-proof nature ensures your loved ones won’t face unexpected financial burdens, even in an evolving tax landscape. It’s an effective tool for preserving your legacy without worrying about political or economic developments.
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