Life insurance for inheritance tax usually means a whole of life policy, written in trust and sized to an estimated bill, so that cash is there when the tax falls due. It does not shrink the tax; it supplies the money to pay it, and under a trust that money goes to the trust's beneficiaries rather than into the estate.

Would you like to hear what cover like this could cost at your age and health, and whether it can be set up in trust? The form on this page takes a minute, and an FCA-authorised broker calls you at no cost to explain what is possible for your situation.

The tax rules here are quoted from GOV.UK and HMRC as read in October 2026. Rules change, and nothing on this page is tax advice on your own estate.

What size of bill would the policy need to meet?

GOV.UK's guide says inheritance tax is paid from funds in the estate, by the person dealing with the estate. The rate and thresholds, as the government prints them:

ItemAs printedSource
Standard rate40%, charged only on the part of the estate above the thresholdGOV.UK
Nil-rate band£325,000, for 6 April 2009 to 5 April 2031HMRC (updated 6 April 2026)
Residence nil-rate band£175,000, for 6 April 2020 to 5 April 2030HMRC (updated 6 April 2026)
Threshold when you pass on a homecan increase to £500,000 where you own the home or a share of it, you leave it to your children (adopted, foster and stepchildren count) or grandchildren, and the estate is under £2 millionGOV.UK

Leaving everything above the £325,000 threshold to a husband, wife or civil partner, or to a charity or community amateur sports club, normally means no tax, GOV.UK says. It adds that where you are married or in a civil partnership and your estate is worth less than your threshold, "any unused threshold can be added to your partner’s threshold when you die." So for many couples any bill comes on the second death.

A hypothetical worked example, with an invented person and figures, shows the arithmetic. Assume one single person with no late partner's unused threshold to add, no gifts in the 7 years before death and no reliefs. The estate is worth £900,000, which is less than £2 million, and includes a home they own and leave to their children, and we assume the full £500,000 (the £325,000 nil-rate band plus the £175,000 residence nil-rate band) applies. £900,000 less £500,000 leaves £400,000, and 40% of £400,000 is £160,000. Change any assumption and the answer changes, so it is not a sum to insure for; how much life cover you need covers the general method.

From 6 April 2027, pensions will be added to the estimate. HMRC's technical note on unused pension funds and death benefits (published 26 November 2025) says the measure will bring most unused pension pots and pension death benefits into an estate's value, while death in service benefits from a registered pension scheme stay outside it. The Finance Act 2026 applies the change to deaths from that date.

Which policy shape suits an inheritance tax plan?

The tax falls on death whenever it comes, so the cover usually chosen has no end date. Aviva's guide to life insurance and inheritance tax (last updated 12 May 2026) says that with whole of life cover, "the proceeds can be used to pay off some, if not all, of a future inheritance tax bill." Legal & General's consumer guide (16 March 2026) frames it as avoiding a forced sale: a payout "could be used to pay an Inheritance Tax bill without having to sell other assets to meet the cost."

Couples face a choice of set-up. L&G's policy summary for its Whole of Life Protection Plan (LG2588 06/2025) says that if you want a joint plan for inheritance tax, it will need to pay on the second death, because the tax may not be due if the estate passes to a UK-domiciled spouse or registered civil partner; the plan pays its cover once. Aviva's Guide to trusts (EDCO0853 0126) points out that both owners of a joint policy become settlors of its trust, and suggests two separate single policies, each in its own trust, may be worth considering. Second death life insurance and joint life insurance in trust compare the two. To see one joint second death policy priced against two single ones, ask for both when the broker rings.

Tax on a large lifetime gift is a different risk with different cover. Under GOV.UK's 7 year rule, a gift carries no tax if the giver lives 7 years after making it, unless it is part of a trust, and taper relief on gifts from 3 to 7 years before death applies only where gifts in those 7 years total over £325,000. Gift inter vivos insurance explains cover built around that.

Why write the policy in trust?

Without a trust, the payout can add to the bill it was bought to pay. HMRC's Inheritance Tax Manual (IHTM20012, updated 7 April 2026) says that where the person who died was the life assured, the proceeds join their free estate and are taxed on their death. Insurers word the effect of a trust with care. Legal & General's summary says cover under a suitable trust "should" not form part of the estate. Aviva's guide keeps the benefits out of the settlor's estate only so long as none of the settlor, the settlor's estate or personal representatives is a beneficiary. Royal London's trust guide (13 October 2025) describes a trust policy as usually counted outside the estate, and adds that beneficiaries need not wait for probate.

Which trust, and what it costs to run, are covered in life insurance trust options, is life insurance taxable in a trust? and does life insurance need to be in trust?; for the whole of life case in detail, see whole of life insurance and inheritance tax.

Do premiums on a trust policy use up your gift allowances?

They can. With a policy in trust, Legal & General's guide points out, you are paying for a policy the trustees legally own, and each premium is "technically classed as a gift for IHT purposes", though it says such gifts are normally exempt as regular gifts from income or under the annual allowance. The same manual page treats the cost of taking out a policy for someone else's benefit, normally the first premium, as a taxable gift, and says later premiums on a policy owned by somebody else, after any exemption, may be a potentially exempt or a chargeable transfer.

Two exemptions can cover premiums, and they work differently:

  • The annual exemption. GOV.UK's gifts guide allows £3,000 of gifts in total each tax year without them being added to the estate, and any unused part carries forward to the following tax year, but no further. Premiums share that £3,000 with every other gift you make that year.
  • Normal expenditure out of income. GOV.UK puts no cap on regular payments, provided you can afford them once your usual living costs are met and you pay them from your regular monthly income. HMRC's manual (IHTM14231) puts the test as three conditions: the gift formed part of the giver's normal expenditure, was made out of income, and left them with enough income to keep their normal standard of living. A gift must meet all three and must not fall within the manual's exceptions, which include premiums on a life policy linked to an annuity.

On the first condition, IHTM14241 says normal means normal for the giver, not for the average person, and that a single gift can qualify if it is, or is intended to be, the first of a pattern and there is evidence of this. IHTM14235 says premiums paid by one person for a policy on their life which benefits another "may qualify" for the exemption. If the payer has also bought an annuity, though, HMRC considers whether the policy and annuity form a back-to-back arrangement; if they do, the premiums are excluded from the exemption and cannot be relied on to show that other gifts are normal. Whether your own premiums qualify turns on your income and records, a question for a solicitor or tax adviser.

What should you check before arranging cover?

  • How a plan is sold. Legal & General's guide says its Whole of Life Protection Plan is available through advisers, and Royal London's product page says its Whole of Life Cover is available through a financial adviser. Which whole of life plans the broker can arrange, from the insurers it works with, is something it can tell you free when it calls.
  • Premiums for life. Under L&G's summary, premiums carry on for as long as the insured person lives, and the plan never builds up a cash-in value. See what whole of life insurance costs and is a life insurance cash-out taxable?
  • The trust paperwork. See putting a policy into trust and, for the wider subject, trusts and tax.

Frequently asked questions

How does life insurance avoid inheritance tax?

It does not remove the tax. Written in a suitable trust, the payout is described by insurers as usually sitting outside the estate, so it does not add to the bill, and the beneficiaries can put it towards the tax. How the trust is written decides whether that holds.

What is inheritance tax protection insurance?

The phrase usually describes the arrangement on this page: whole of life cover written in trust and sized to an expected bill. Legal & General, for example, heads its Whole of Life Protection Plan summary as family and IHT protection.

Is there a calculator for life insurance to cover inheritance tax?

The sum can be done by hand: the estate's value, less the thresholds that apply, at 40%, as in the hypothetical example above. What a calculator cannot judge is which thresholds and reliefs your estate qualifies for; a solicitor or tax adviser can.

Would you like figures built around your own age, health and the sum you are thinking of? With the form on this page completed, you can go through cover for your own estate plan with an FCA-authorised broker on a free call-back.

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