Inheritance Tax Insurance - is it any good?

OuterNet

My mother has had a suggestion from a "financial adviser" at Barclays that she can provide for payment of the inheritance tax which will be due on her estate when she dies by taking out inheritance tax insurance. I'm not sure that its a good idea, it costs about £100 a month - so she could end up paying thousands. Has anyone ever heard of this insurance? I have searched money saving expert and other sites, but can't find any information on any other users of this type of insurance.

Thanks for any info any of you can give!

yelf

its called a whole of life policy and is very common. it means the IHT bill can be paid straight away, and means assets do not need to be sold. Rememeber that that the IHT has to be paid before beneficaries can take hold of the assets

Debt_Free_Chick

yelf wrote: »

its called a whole of life policy and is very common. it means the IHT bill can be paid straight away, and means assets do not need to be sold. Rememeber that that the IHT has to be paid before beneficaries can take hold of the assets

Great answer :T

I would only add that the OP could/should shop around to see if they can get the same policy at a lower premium.

-Vita-

If inheritence tax is likely to be due, then it is worth ensuring that it can be paid - after all someone has to pay! Unless the assets are to be sold to pay the IHT liability, then an insurance policy can negate the need.

Harp5

All good advice, I would add that you should ensure that your mother would actually be liable for IHT in the first place. Her estate must be valued at over £325,000, and if she is married that allowance effectively doubles as long as an allowance isn't used on the first death.
Sometimes Whole of Life policies decrease in value/sum assured over time, you should look out for that too! Many also include an investment element so they will have a cash in value if you wanted to cancel the policy (minimal as it may be!).
Finally, you MUST ensure that any policy intended to mitigate against an IHT liability be placed in a trust. This is absolutley essential, otherwise the payout of the policy will form part of the estate and you will be liable for IHT on this amount as well, thereby making the whole process pointless and costly!

lordhaldon

Slow down please! Extreme caution is needed here. For a start, based on a pretty good knowledge of the banking system and their advisers, I would suggets that you check the qualification of the adviser to ensure he is qualified to calculate the potential IHT liability. I would guess he/she is not qualified to calculate the potential liability and that secreted somehwere in what is called "the suitability letter (SL) it will state something along the lines to the effect that he/she is NOT and that ".... we suggest that you consult with a suitably qualified tax adviser." (You normally get this SL AFTER you have signed up for it but ask for it BEFORE your Mother signs.) In that SL they should suggest the use of aTrust - if they don't, the insurance payout will be added to your mothers estate and the liability will be increased. If they don't recommend a Trust, get up and walk out! If a life assurance policy in Trust is the best way or mitigating your mothers potential inheritence liability, go to an IFA or buy the product off of one of the online providers. If a Bank charges you £100 per month the online providers will be much cheaper. You can go to various sites to have a rough stab at calculating the liability yourself including moneymadeclear. Whatever you do, do something as paying into a life assurance policy will cost less than the tax bill! The life policy you need is a Whole of Life. I hope this helps.:beer:

dunstonh

It can be a good idea. However, if its £100pm at Barclays then chances are its closer to £60 via IFAs. Especially if you buy a non investment backed whole of life plan (personally wouldnt touch an investment linked one)

Nowadays, you dont see much of it (at least not in our area) as the doubled up IHT nil rate band captures so many people. Plus, its not the only way to deal with these things.

yelf

lordhaldon wrote: »

, I would suggets that you check the qualification of the adviser to ensure he is qualified to calculate the potential IHT liability. I would guess he/she is not qualified to calculate the potential liability If a Bank charges you £100 per month the online providers will be much cheaper.

As much as i agree tied advisers are no where near as efficent as IFAS, calculating an IHT bill is simple maths and requires no qualifications.

lordhaldon

yelf wrote: »

As much as i agree tied advisers are no where near as efficent as IFAS, calculating an IHT bill is simple maths and requires no qualifications.

I agree - on the surface however it can get quite complicated as it is not just a case of gross asset minus gross liability minus £325k x 40%. There are lots of other factors to take into account. That said, a rough calculation based on the above and a commitment to act is better than doing nothing. If you over calculate, there will be a surplus (Happy Christmas) and if you undercalculate, at least you have something. And, the real point is that if the adviser is going to recommend a policy to mitigate a potential IHT liability, why does he (Company) feel the need to Teflon coat the advice and put in the disclaimer? As dunstonh says, there may be other ways. Get a good IFA. Hope this helps.

diable

IHT can be spread against both parents so the total could be £650k

lordhaldon

Abolutely correct, £650k if both alive. The OP said his "Mother" had been advised so my suggestion was based on one person and their allowances.