Planning your estate is challenging at the best of times. Knowing how to mitigate your liabilities while ensuring your loved ones are cared for takes proper planning and the right tools. The 2024 Autumn Budget Statement announcements could create significant and lasting challenges for rural businesses of all sizes. Under the Chancellor’s proposed changes, from April 2026, IHT reliefs available to farms and family businesses will be restricted.

Additionally, Business Property Relief (BPR) will be restricted to 50% for all shares designated as ‘not listed’ on a recognised stock exchange, such as Alternative Investment Market AIM, from April 2026. One such tool that is receiving attention is whole-of-life cover. In addition to being a standard life insurance product, it offers unique benefits that can help individuals protect their legacies while addressing IHT concerns.

What is whole-of-life cover? 

Whole-of-life is a life assurance product designed to provide peace of mind. Unlike term life insurance, which only offers cover for a fixed period, whole-of-life cover guarantees a payout whenever the policyholder passes away – whether that’s next year or decades into the future. 

This means the policy lasts for the entirety of your life, ensuring that your beneficiaries, such as your children or loved ones, will receive the agreed-upon payout. This reliability makes whole-of-life cover particularly valuable for estate planning purposes, especially when considering tax liabilities. 

Managing IHT liabilities with whole-of-life cover 

Inheritance Tax is charged at 40% on estates valued above the IHT threshold, currently set at £325,000 in the UK, extended to 2030, Residence NRB may also be available. This figure often includes the value of your home, savings and investments, making it easy for estates to exceed the threshold and incur significant tax liabilities. 

A whole-of-life cover policy can be set up within a trust, which is particularly advantageous when tackling IHT. The payout remains outside your estate if the policy is placed in an appropriate trust. This means beneficiaries can use these funds to settle any IHT obligations without dipping into their inheritance or liquidating other assets. This strategic structure helps maintain the integrity of the estate while easing financial burdens. 

Life expectancy must be considered 

When determining the appropriateness of whole-of-life cover, several factors should be considered, including your age, health, lifestyle, and the size of your estate. One of the most important considerations is life expectancy. Generally, whole-of-life policies become more cost-effective when individuals live well beyond the average life expectancy. This is because premiums are paid over a longer period, which spreads the overall cost of the policy across many years, ultimately reducing the annualised cost of cover. 

Choosing whole-of-life cover isn’t a decision to be taken lightly. It’s essential to assess whether the policy’s benefits outweigh its costs. For example, if your IHT liability is substantial due to owning high-value assets or property, whole-of-life cover can be a crucial part of your financial strategy. 

Similarly, you’ll need to weigh the premiums against your budget and personal circumstances. 

Stability Amid Uncertainty 

One of the most compelling benefits of whole-of-life cover is its perceived stability. We live in an era of fluctuating taxation policies, and future budgets could bring changes to inheritance tax (IHT) thresholds or rates. While the life cover itself remains unaffected by these changes, it’s important to note that tax laws could impact how the proceeds are treated, depending on the prevailing regulations at the time. 

Whole-of-life policies also provide a level of future-proofing by ensuring your loved ones won’t face unexpected financial burdens, even in an evolving tax landscape. However, it’s essential to understand the nature of these plans – they are subject to periodic reviews, typically after the first 10 years and then regularly thereafter, depending on the terms of the policy. During these reviews, adjustments may be required, such as: 

  • Increased premiums to maintain the same level of cover, or
  • Reduced sum assured if you prefer to keep your premiums consistent.

These adjustments reflect the fact that whole-of-life plans are designed to be flexible, allowing you to make decisions based on your changing financial circumstances and goals. 

While whole-of-life cover offers a dependable way to preserve your legacy, it’s important for potential policyholders to understand that these plans are not static. The longer the policy is in force, the more likely it is that adjustments will be needed, which could result in higher premiums or a lower payout. Being informed about these nuances ensures you can make the right choice to suit your needs and protect your estate effectively. 

To discuss any of the issues raised in this article, please contact us. Further information can also be found at gov.uk. 

The tax treatment is dependent on individual circumstances and may be subject to change in future. The financial conduct authority do not regulate tax planning. 

All Matters Financial Podcast

Dive deeper into the topics mentioned on this insight and more with our All Matters Finance Podcast. Click the link below:

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice.

Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Pareto Financial Planning Limited is authorised and regulated by the Financial Conduct Authority (FCA).