Inheritance Tax avoidance on the rise

Wealthy Britons are rushing to create tax trusts using whole life insurance policies to limit the impact of Rachel Reeves’s inheritance tax expansion.

At issue: In her October budget, Rachel Reeves announced reductions in Agriculture and Business Property relief alongside other changes to Inheritance Tax.

• From April 2025, wealthy foreigners who have been in the UK for more than 10 of the past 20 years face paying IHT on their worldwide assets, plus a period of exposure to the levy even after they have left the country.

• Agriculture and Business Property relief will have 100% relief from IHT on the first £1m IHT with IHT relief dropping to 50% on amounts over £1m. These changes will come into effect affect in April 2026.

So What? Well wealthy brits are creating tax structures via whole life insurance policies to, one, lower the size of their estate and two, insure away the risk of their beneficiaries being stuck with a huge IHT bill with no cash available to pay it. Insures are noticing a rise in demand for their services according to the FT.

How does it work? An individual will take out a whole life insurance policy which will be placed in a trust for their beneficiaries. The individual will make payments into the trust via their insurance policy thus minimising their inheritance tax bill. Upon death the trust will make a payment to the individual’s beneficiaries with no IHT payable as the trust was held outside of the estate.

IHT remains an unpopular with x Britons being against it according to a YouGov poll. In 2022 alone, 275 rich families passed on assets worth £2 billion to the next generation without paying inheritance tax, or paying a much reduced rate.

It is unlikely that IHT tax goes away in the future with it bringing in a much needed £7.5bn in tax revenue for the treasury.