Tax tip: Life assurance

Does your client have life assurance? If so is this due to be paid into a trust on their death to help avoid inheritance tax (IHT)?

Life assurance arrangements are generally a positive idea. However as with most things involving tax the details of the arrangement matter as if things aren’t done ‘correctly’ the payment on death becomes part of the individual’s estate and (potentially) liable to IHT at a rate of 40%.

However it is usually quite simple to ensure that such payments are linked to a trust rather than the individual’s estate. For example it can be as simple as obtaining a ‘trust registration form’ from the life assurance provider and ensuring that this is completed by the individual and submitted to the insurance firm concerned.

Having life assurance settlements going into a trust is very tax efficient and smooth and...