As inheritance tax increasingly affects a broader range of families, ensuring wealth passes efficiently between generations has become a central focus for advisers. In this context, protection is playing a growing role in safeguarding family wealth and providing certainty around future liabilities. Alan Lakey, founder and director of CIExpert, explores how whole of life cover and early planning can help advisers support clients in managing IHT exposure and preserving assets for the next generation.
In the 2024 Autumn Budget, Chancellor Rachel Reeves confirmed that pension funds will fall within the scope of Inheritance Tax (IHT) from the 2027/28 tax year. Under current rules, pension assets can pass to beneficiaries free of IHT if the holder dies before age 75 and the fund value remains within the £1,073,100 limit. The Treasury has since confirmed that death‑in‑service benefits will remain outside these changes.
The announcement has driven a notable increase in client enquiries, reflecting wider concern about future IHT exposure. This is unsurprising given that an individual’s IHT nil‑rate band ranges from £325,000 to £1,000,000, with any excess taxed at 40%. Currently, 5% of estates are liable for IHT, a figure expected to rise to 8% in 2027/28.
Traditional mitigation methods, such as lifetime gifting, gifting surplus income, equity release or relying on the £3,000 annual allowance, offer only a limited scope. The annual allowance of £3,000 per person is unchanged since 1981 and offers limited scope. Additionally, many clients are reluctant to gift capital that may be required for an enjoyable retirement and possibly long‑term care.
For a significant proportion of clients, a whole‑of‑life policy written in trust provides a more reliable planning tool. Married couples and civil partners can significantly benefit from a joint‑life second‑death whole of life plan, aligning premiums with the point at which IHT typically crystallises. The fundamental advantage of whole‑of‑life cover is its guaranteed payout, making it well‑suited to liabilities that are themselves unavoidable.
However, most consumers do not consider IHT provision until their 60s or later. By this stage, premiums are materially higher and underwriting outcomes less favourable. This timing issue is largely behavioural: years of pension contributions, rising property values and accumulated savings create an expectation of ongoing wealth accumulation, making the concept of gifting assets feel counter‑intuitive.
An evidence‑based approach shows the financial efficiency of earlier planning. Premiums rise sharply with age, as illustrated in Table 1 below.
Table 1 – Single Life
| Age 35 | Age 45 | Age 55 | Age 65 | Age 75 | Age 85 |
| £64.70 | £91.04 | £125.25 | £197.01 | £353.87 | £762.96 |
For a married or civil-partnered couple, a joint-life second death plan makes obvious sense as it is generally on the second death that IHT kicks in. Table 2 shows how this reduces the premium quite dramatically.
Table 2 – Joint Life Second Death
| Both age 35 | Both age 45 | Both age 55 | Both age 65 | Both age 75 | Both age 85 |
| £50.78 | £71.79 | £95.72 | £145.72 | £250.75 | £521.28 |
* Both tables assume £100,000 non-smoker – assumes guaranteed rates and non-rated terms.
Future estate values and tax policies cannot be forecast with certainty, yet the direction of travel is clear: IHT receipts are projected to reach £9.1 billion in 2025/26, reinforcing the likelihood of its continued use as a revenue source. As at early 2025 there were £702,580 properties valued at £1 million or more, with half of these within London.
For advisers, two conclusions emerge. First, clients typically begin to consider IHT planning only after experiencing the probate process for a parent and finding out that the tax has to be paid prior to the sale of the property, by which time options have narrowed. Second, discussions with clients’ 30s, 40s and 50s are materially more effective, as premiums are demonstrably lower and underwriting is more favourable. The premium tables above provide a simple but powerful tool to demonstrate the financial implications of delay. Additionally, many insurers now offer guaranteed increase options linked to future IHT changes or life events without requiring new medical evidence.
Early engagement therefore remains the most cost‑efficient strategy for long‑term IHT planning.
