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The rich in Britain are turning to life insurance to reduce the pain of unexpected inheritance tax bills following a contentious overhaul of the system in the autumn Budget.
“Every market has its day in the sun. Life insurance is having a moment,” said Holly Hill, associate director at insurance broker John Lamb Hill Oldridge, adding that she had seen “a deluge” of new policies taken out by estate owners following the Budget in October last year.
John Lamb Hill Oldridge said it had previously been writing new life insurance policies for 30 rich individual clients at any one time, but since the tax reforms were announced, the number had gone up to 110.
In Rachel Reeves’ first Budget as chancellor, she announced reforms to agricultural property relief (APR) and business property relief (BPR). As a result of the changes, people with large estates or companies that had previously been exempt will pay inheritance tax at 20 per cent on assets above £1mn from April 2026.
Reeves also confirmed the abolition of the non-dom regime, which allowed British residents who declared their permanent home as being overseas to avoid paying UK tax on foreign income and gains.
There is no figure for how many rich individuals have taken out life insurance cover and how much they have insured against. But Hill said her company had policies covering £3.5bn, which represented inheritance tax on assets of £8.75bn.
People are taking out both fixed-term policies, which cover them for a set period of their life, and whole-of-life cover, advisers said.
Life insurance policies are held in trust and can be an effective way of settling the IHT bill of an estate. Both types of policy pay out in the event of death, ensuring heirs are not forced to sell assets quickly to pay the UK tax authority within six months of death.
Hill said that former non-dom clients who had moved overseas but kept their UK property had thought: “I might as well just slap an insurance policy on my house in Kensington . . . and then I can just be free abroad and not worry,” about their heirs struggling to pay a future IHT bill, as this would be covered by their policy.
David Gregory, a senior partner at 1291 Group, an insurance advisory business for wealthy families, said there had been “a massive increase in demand” to meet new tax liabilities.
There had been indications of fresh demand from early 2024, when then-chancellor Jeremy Hunt announced he wanted to abolish the non-dom regime, which gave people protection from IHT on non-UK assets.
Catrin Harrison, a partner at law firm Charles Russell Speechlys, said: “Previously, we didn’t work with the insurance industry a great deal; we could structure pretty good protection, but now we have individuals who thought their non-UK wealth was protected and it’s suddenly not.”
Harrison said life insurance “can be surprisingly good value”.
If a non-dom had been paying the £90,000 annual fee to use the tax-favourable “remittance basis” under the previous regime, they could now be spending it on inheritance-tax protection instead, she said.
Those who have decided to remain in the UK will see their worldwide assets potentially subjected to the standard rate of inheritance tax at 40 per cent.
The Treasury forecast that ending the non-dom system would bring in £12.7bn by the 2029-30 tax year, while the change to APR and BPR would raise £1.8bn.