Sales of life insurance policies in the UK have experienced a significant boost, with total premiums rising by 18% to £447 million for the year ending 31st March 2025, according to new data from TWM Solicitors. This surge comes as families rush to mitigate the impact of inheritance tax (IHT) following recent changes to IHT regulations.
A Growing Trend in Estate Planning
The increase in life insurance sales is being driven by families looking to reduce the size of their taxable estates and preserve more wealth for future generations. According to TWM Solicitors, the value of life insurance sales has surged from £378 million in the previous year to £447 million in the current year.
The main reason behind this shift is the government’s announcement of upcoming changes to inheritance tax rules, which will result in more assets becoming subject to IHT. These assets include pensions, agricultural property, and business property such as family-owned businesses or AIM shares.
Life Insurance as an Estate-Planning Tool
Duncan Mitchell-Innes, Partner and Deputy Head of Private Client at TWM Solicitors, explained that life insurance payouts are free from income and capital gains tax, making them an attractive solution for families looking to mitigate IHT. By placing these policies in certain types of trusts, they can also be exempt from inheritance tax, enhancing their appeal as an estate-planning strategy.
Mitchell-Innes further highlighted that, starting from 6th April 2027, the government will reverse the long-standing IHT exemption for defined contribution pensions. These pensions will now be subject to the standard 40% inheritance tax rate, potentially affecting many estates that previously fell under the £325,000 nil-rate band. As a result, families are turning to life insurance policies to offset the upcoming increase in tax liabilities.
Key Changes to Inheritance Tax
The government’s new rules will impact a range of assets, including:
Pensions: Defined contribution pensions will now be subject to IHT, which is expected to push many estates over the £325,000 threshold.
Agricultural and Business Property: More family assets, including agricultural property and shares in family-owned businesses, will be included in the IHT net.
These changes are driving the demand for life insurance policies, as families seek ways to offset the increased tax burdens and protect their estates.
The Benefits of Life Insurance for IHT Planning
Life insurance remains a crucial tool for estate planning, especially when used within specific trusts that allow the policy proceeds to pass outside of the estate, thus reducing IHT liabilities. The 18% rise in life insurance sales indicates a growing awareness among families about how they can use life insurance to protect their wealth and reduce the impact of the IHT changes set to take effect in the coming years.
As the deadline for changes to pension IHT exemptions approaches in 2027, experts expect more families to turn to life insurance as a way to prepare for the inevitable rise in estate tax liabilities. The trend is clear: families are increasingly relying on life insurance policies as part of their long-term financial strategy to preserve wealth and ensure their heirs are not burdened with hefty tax bills.
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