Thousands overpay IHT on life insurance policies

Over 6,000 estates paid inheritance tax (IHT) on life insurance policies in 2018/19, according to HMRC figures, despite the fact many would have escaped a tax charge if they had written their policy into a trust.

Of the 22,100 estates that paid IHT, over a quarter of them (6,040) included life insurance policies, which are subject to IHT.

The life insurance policies were worth £709 million, coming to a potential tax take of £280m in the tax year.

However, life insurance policies that are written into a trust do not normally form part of a deceased's estate, and would therefore not be liable for IHT.

Sean McCann, chartered financial planner at NFU Mutual, explained:

"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%.

"Using a trust can also mean a speedier pay out in the event of a claim, as the family won't need to wait for probate, which can make a huge difference to dependants relying on the money to cover day to day bills."

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