Short Term IHT Issue

Client has circa £120K exposed to IHT.  Over the course of the next few years this is likely to be removed due to their spending and the RNRB increases.

Options to cover the liability as we see it are either:
- Insured BPR contract (a la Foresights AITS which effectively gives immediate IHT relief) then sell it after 4 years.
- Decreasing Term Assurance for a 4 year period stepping down inline with RNRB increases.

Any one know of an insurer that would offer such a policy; clients are 75 and 74....



  • CaroCaro Member
    edited May 2017
    Is the IHT liability £120k or 40% of the £120k giving a liability of £48k? You may be able to find term assurance for 4 years, but if you are struggling with this you could look at a longer term and then cancelling (being mindful of any adviser fee clawback if you are taking one). The issue with this is that it could become costly for the older life as you would be looking at an end term potentially in their 80s. 

    One alternative would be a whole of life that is cancelled after 4 years. This could either be on a joint life, second death basis or a single life basis on whoever is likely to get the lower premium.  If the life assured dies second, they have the funds to pay the liability ready; if the life assured is the first to die, the proceeds can be paid into a trust and held outside the estate in cash or other very low risk accessible investment, ready to pay the liability on the second death.  If they both survive the four years, (hopefully the most likely outcome!) then the policy could simply be cancelled. 

    The Foresights plan is not a contract that I am familiar with, and a BPR plan is an option but if the liability is only £48k, my question would be is it prudent to invest £120k in a high risk investment to save a potential tax liability that may never occur?  If they are both in good health, and presumably they would both need to die over the next four years for the IHT to become payable, (assuming that there are no legacies over the NRB on the first death) are they happy to take the risk with that level of capital?

    I guess it will depend on the level of priority the clients place on eradicating the IHT, the cost for life cover, their risk profile and capacity for loss with the £120k, but as this is not a massively high liability, perhaps they could spend a bit more for and spoil themselves for a bit?!! :smile:  smile  

  • NathanNathan Member
    Obviously I dont know the full circumstances, but  if they can stop the income from the pension arrangements (or take income up to the personal allowance) and spend other assets this would effectively remove the assets from the estate?

    The other option is as @caro said, spend it and consider everything as being at a 40% discount!
  • RalfosRalfos Member
    Bit late but Royal London do a 'level decrement' policy which is basically a series of polices ie 1yr, 2yr, 3yr, 4yr. 

    I have used on once to match the last 4 years of a gift someone made 3 years ago.

    However, almost no-one at RL will even know they do it or understand what you mean so you have to basically tell them what you want!
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