Are You Underinsured? The Inheritance Tax Trap

The Growing IHT Problem

In 2024/25, HMRC collected a record £7.5 billion in Inheritance Tax. The frozen nil-rate band (stuck at £325,000 since 2009) combined with rising property values means more families are caught each year.

Calculate Your Exposure

Your potential IHT liability is:

• Total estate value (property + savings + investments + pensions death benefits + life insurance NOT in trust)
• Minus: Nil-rate band (£325,000)
• Minus: Residence nil-rate band (£175,000 if home passes to children)
• Minus: Any spouse/civil partner exemption
• Result x 40% = IHT due

The Insurance Solution

Whole-of-Life Insurance in Trust

A whole-of-life policy written in trust pays out directly to your beneficiaries, outside your estate. This means:

• It doesn't increase your estate value
• It's paid quickly (usually within days)
• Your family can use it to pay the IHT bill without selling assets

How Much Cover?

Calculate your likely IHT bill and insure for that amount. Review annually as property values change.

Common Mistakes

• Life insurance not in trust: If your life insurance isn't in trust, it forms part of your estate — and gets taxed
• Relying on the spouse exemption: Everything passes tax-free to a spouse, but when the surviving spouse dies, the full estate may be taxable
• Ignoring pension death benefits: Unused pension pots can be subject to IHT in some circumstances

What WhenImGone Does

Our Insurance section tracks every policy, flags whether it's held in trust, and alerts you to potential coverage gaps. Your financial adviser can review this through their professional dashboard.