Dave Butler, Market Development Manager, Legal & General

How can protection be a cost-effective inheritance tax solution? Since the chancellor’ s autumn statement last October, many people are looking into using protection to mitigate Inheritance Tax( IHT) liabilities. With changes to agricultural property and business relief approaching within the year, and updates to pensions planned for the following year, some of your clients will be racing against time to gift or change their financial plans before they come into force. For many, protection may be the solution.

Not enough protection policies are placed into trust, which means many policies are left inside the estate when the client dies. Setting up a trust can avoid lengthy probate delays and lets the settlor, typically the life assured, name the beneficiaries directly. It’ s important to consider several factors when placing protection in trust. Discretionary trusts, for instance, are subject to the Relevant Property Regime, with possible entry, periodic, and exit charges. When established, these trusts have their own Nil Rate Band( NRB). If no gifts have been made in the past seven years, this could mean access to the full NRB of £ 325,000.

SETTING UP A TRUST CAN AVOID LENGTHY PROBATE DELAYS AND LETS THE SETTLOR, TYPICALLY THE LIFE ASSURED, NAME THE BENEFICIARIES DIRECTLY.

Understanding potential charges and their implications When a protection policy is initially placed into a trust, it doesn’ t hold any value. However, after ten years, it could potentially incur periodic and subsequent exit charges if it gains value. If a claim is on the horizon, has just been paid, or if funds remain in the trust to support a beneficiary, the trust might reach its 10-year mark with a value. This could lead to a charge of up to 6 % on funds exceeding the NRB.

Additionally, there are important things to consider for Whole of Life policies. The policy value is often seen as the total premiums paid in and is evaluated every 10 years.

For instance, with a £ 30,000 premium, you wouldn’ t exceed the Nil Rate Band at the first 10-year mark. However, you might at subsequent 10-year intervals, potentially incurring charges. To mitigate this risk, your clients could consider dividing the policy into multiple smaller plans.

14 | PROTECTION ADVISER | AUTUMN 2025 |