RegulationApr 23 2012

Unbiased claims lack of insurance under trust costs £448m

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ByEmma Ann Hughes

Almost nine out of 10 Britons have taken no action in the last 12 months to reduce the amount of inheritance tax their estate could be liable for, Unbiased revealed.

Unbiased’s annual Tax Action Report reveals UK taxpayers will waste £448m this year due to poor inheritance tax planning when it comes to their life insurance policies.

Under current tax rules, life insurance policies are usually free of personal liability, however in certain circumstances your payout may be subject to inheritance tax.

In order to avoid this, individuals taking out life protection specifically to provide for their heirs need to make an important decision before signing on the dotted line.

They can either decide to leave the payout to beneficiaries directly, or alternatively put these policies ‘under trust’, thereby removing the asset from the estate.

The former route could reduce a £100,000 life insurance payout by as much as £40,000 if an individual’s estate is worth more than £325,000, the current inheritance tax threshold for individuals.

Karen Barrett, chief executive of Unbiased, said: “Ensuring your life insurance payout no longer forms part of the estate is one of the simplest and most effective ways of avoiding ‘death tax’ wastage.

“It also reduces the legal loop holes which beneficiaries are usually faced with thereby making it both quicker and easier to distribute the money to the right people.”