Paying Inheritance Tax with Insurance: Whole-of-Life Policies in Trust

IHT is due six months after the end of the month of death. Estates with property, private investments, or now pension benefits included in IHT can struggle to produce cash on that timetable. A practical solution is a whole-of-life policy, typically joint-life, second death, written in trust so proceeds bypass the estate and reach trustees quickly.

Why insurance rather than asset sales?

Insurance in trust delivers timely liquidity without inflating the estate or forcing the sale of assets at awkward moments. The sum assured is calibrated to the modelled IHT liability (including any portion attributable to pensions), and premiums can often be funded from surplus income—which dovetails neatly with the gifts-from-income exemption.

The design decisions that matter

• Guaranteed vs reviewable premiums: Predictability versus flexibility over decades.
• Trust structure and beneficiaries: Clear, simple trust wording avoids disputes and delays.
• Underwriting and insurer strength: Long-term reliability matters more than marginally lower premiums.
• Ongoing review: As asset values, rules and family circumstances change, the sum assured and premium strategy may need to shift.

How insurance fits with the new pension rules

With unused pension funds in the IHT net from 2027, many families prefer to fund the eventual liability rather than restructure assets heavily. Insurance becomes the liquidity bridge, allowing the investment strategy to remain intact while ensuring HMRC is paid on time. Combined with measured drawdown, partial annuitisation, or charitable design, it’s often the piece that makes the whole plan workable in practice.

What it doesn’t do

Insurance isn’t “tax alchemy.” It doesn’t eliminate IHT; it funds it. The value lies in timing, certainty, and simplicity for executors and beneficiaries. When the alternative is hurried sales, discounts to fair value, or family stress, the case for a clean, well-drafted policy in trust is strong.