Written by Jacob Fay, Associate at John Lamb Hill Oldridge
Advisors working with high-net-worth and ultra-high-net-worth clients in the UK are operating in an increasingly complex environment when it comes to estate planning. A central concern is how to manage substantial inheritance tax (IHT) exposure while ensuring that the estate has sufficient liquidity to meet tax liabilities after death. The issue is compounded for clients whose wealth is tied up in illiquid assets such as private companies, agricultural land, commercial property, or long-term investments. While inheritance tax may be inevitable, the ability to pay it without dismantling the estate is not.
In many cases, clients have historically relied on Business Relief (BR) and Agricultural Relief (AR) to mitigate or eliminate their inheritance tax burden. These reliefs, which can reduce the taxable value of qualifying assets by up to 100%, have been a cornerstone of planning for those with trading businesses or agricultural property. However, this approach is becoming increasingly challenging due to regulatory changes.
Business and Agricultural Relief have come under scrutiny from policymakers with the previous 100% relief being reduced to 50% relief (above allowances) from April 2026 onwards. For many clients, this will dramatically alter their estate’s exposure to inheritance tax and for advisors, it raises the stakes significantly when it comes to estate liquidity planning. Furthermore, the IHT free nil-rate band threshold has been frozen at £325,000 since 2009 and will remain so until 2030 which has meant that more estates are falling into the IHT net.
In this context, life insurance is becoming an increasingly valuable strategic tool. When structured properly, it can provide a tax-free, immediate source of liquidity on death, helping beneficiaries settle IHT without being forced to sell important family assets under time pressure. But implementing life insurance as part of an estate plan is far from straightforward, and it introduces its own set of challenges that advisors must navigate with care.
One of the most important considerations is structuring the policy to keep the proceeds outside the taxable estate. This typically involves writing the policy into a trust, often a discretionary trust, to ensure that the pay-out does not fall within the scope of IHT. However, this requires precise legal drafting and coordination with other elements of the client’s estate plan. Errors in structure or documentation can result in the policy proceeds being dragged back into the estate, defeating the purpose of the insurance entirely.
Advisors also face the challenge of helping clients fund the policy premiums efficiently. For high-value policies, the annual premiums can be substantial, and advisors must consider whether these payments can be made using gifts from surplus income, which may fall outside the IHT net under the ‘normal expenditure out of income’ exemption. Alternatively, clients may rely on their annual exemption or make potentially exempt transfers, each of which carries its own planning considerations and risks.
Another key issue is ensuring that the level of cover is appropriate and remains so over time. This means not only estimating the client’s current IHT exposure but also projecting future tax liabilities based on potential asset growth, the possible erosion of reliefs, and inflation. Many clients underestimate their eventual tax liability, particularly when they assume BR and AR will continue to be available. Advisors must often educate clients on the risks of relying too heavily on tax reliefs that may not exist in their current form by the time the estate is assessed.
Adding to the complexity is the need to align the insurance profile with the broader estate plan. For example, the beneficiaries of the insurance trust must be coordinated with the will, the business succession plan, and any shareholder agreements. Misalignment can lead to delays, disputes, or even unintended tax consequences. In families with multiple heirs, especially in blended families or where some children are active in the family business and others are not, this becomes even more sensitive. Advisors are often required to mediate these dynamics while preserving family harmony.
Advisors must also stay within regulatory boundaries when recommending and structuring life insurance for estate planning purposes. Compliance with Financial Conduct Authority (FCA) rules, HMRC reporting obligations, and trust registration requirements all add layers of responsibility. The risk of inappropriate structuring is high if advisors are not fully up to date with the latest legal and tax developments.
Moreover, advisors must collaborate closely with solicitors, tax specialists, accountants, and underwriters to build robust and flexible strategies where possible. A well-designed plan can fail if any one piece, such as a trust deed, funding strategy, or tax assumption, is overlooked. The need for cross-disciplinary communication is greater than ever.
In this environment, it is clear that the advisor’s role is evolving. The traditional approach of relying on tax reliefs to eliminate inheritance tax exposure is no longer sufficient. Political, economic, and regulatory uncertainty demands more proactive and resilient strategies. Life insurance, when used appropriately, offers a way to create certainty in an otherwise unpredictable landscape. It allows families to pay IHT without undermining their long-term goals or selling core assets, and it gives clients peace of mind that their estate will be preserved as intended.
