life insurance

flw

is my life insurance subject to inheritance tax
the best answer i can find is usually not
if ths is the case when is it subject to iht
thank you

lisyloo

is my life insurance subject to inheritance tax
the best answer i can find is usually not

I would say that is probably true.
I took insurance out about 5 years ago and asked abut this.
The answer I got was that the proceeds automatically go "into trust" and are free of IHT.
I would expect most are run in this way, but to be sure you should check.
One of the downsides of this is that it's up to the trustees who gets you money.
It is extremely unlikely that they wouldn't follow your instructions. The only situation in which this might happen is it you have dependents whom you hadn't made proper provision for. You normally ahve to fill out a "Declaration of wish" form (and technically it's exactly that - they aren't bound by it).

if ths is the case when is it subject to iht

err.....after you die
Not sure what you are getting at as that's obvious.
With most estates (unless it's very small) a procedure has to be gone through called "probate".
This is basically a process of proving the tax situation to the Inland Revenue.
Once this has been done then everything can be settled/sold.
I believe that IHT has to be paid BEFORE assets can be sold which makes things tricky.
But banks etc. must be used to this situation so I am sure there is some provision for short term bridging loans to pay tax, where suitable security is held.
If the estate is small (less than £5K I think) then you don't have to go through probate.
You fill out a form and make a declaration in from of a solicitor (cost £5).

flw

thanks for your swift answer
you say proceeds go into trust
is this automatic or do i need to set this up

lisyloo

In the case of my insurance policy (with Equitable life) the proceeds automatically go into trust.
I don't know whether other companies automatically do this but it makes a lot of sense.

I would certainly check.
Ring them up and ask them whether it happens automatically. If not then ask them for forms so that you can set it up yourself. (It's not difficult - you just need to fill out the forms and get witnesses to sign).

dunstonh

By default, a life policy is not placed in trust. A trust form needs to be completed to suit the type of trust you want.

Without it being written in trust, it would pay into your estate.

However, if its joint life, first death or to protect a mortgage, you wouldnt normally place it into trust.

lisyloo

By default, a life policy is not placed in trust.

I have just realised an important point.

My equitable life policy is actually a pension with life assurance (and no pension contributions).

It was set up this way because I then get 40% tax relief on the cost of my life insurance (I belive this loop hole is now closed).

They certainly told me that the proceeds who go into trust and the trustees would follow the "declaration of wish" form that I filled out.

The explanation for this may be that it is a pension policy and not a life assurance (although for all intents and purposes it's just life assurance as there is no pension).

Sorry if that caused any confusion.

dunstonh

ahh, pension term assurance is an exception to the rule. A pension is a discretionary trust as is pension term assurance.