The total value of life insurance sales has surged by 18% to £447m this year (year end 31 March 2025), up from £378m in 2023/24, shows new data from TWM Solicitors, a leading private wealth and family law firm.
TWM says that the use of life insurance to help reduce inheritance tax (IHT) comes after the increase in IHT announced at the last budget. Pensions, agricultural property and business property (such as family-owned businesses or AIM shares) will soon be subject to IHT. TWM Solicitors warns that life insurance policies must be held in trust to avoid costly tax and probate delays.
Duncan Mitchell-Innes, Partner and Deputy Head of Private Client at TWM Solicitors, explains that holding life insurance in specific types of trusts can exempt it from IHT, making it a powerful estate-planning tool. Life insurance payouts are also free from income and capital gains tax.
With more estates becoming liable for IHT, individuals have been increasingly turning to products like life insurance to shield their families from future IHT bills.
Mitchell-Innes highlights new IHT rules on pensions due to take effect on 6 April 2027. These changes reverse the long-standing IHT exemption for defined contribution pensions, which will now be subject to the 40% IHT rate. The value of these pensions will push many families above the £325,000 nil-rate band.
Says Mitchell-Innes: “Other than gifting assets, there are fewer and fewer ways to reduce your family’s IHT bill. Life insurance is one of the few routes left and we have seen an increased number of enquiries for advice in this area.”
Families should write life insurance policies into a trust to keep them out of their estate
However, Mitchell-Innes warns that families must take care to ensure life insurance policies are written into a trust to be an effective IHT-efficiency tool.
Mitchell-Innes adds: “Life insurance can be a powerful estate-planning tool, but only when structured correctly. If not held in trust, the policy may be taxed for IHT and tied up in probate, defeating its purpose.”
“With the recent changes to IHT, life insurance remains one of the few effective tools for families to protect their estates. However, it is crucial to structure these policies correctly to maximise their benefits.”
Last year’s budget changes to IHT triggers surge in life insurance sales: premiums jump 18% in a year to £447m
*Pure protection
