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‘Estate planning for high-net-worth clients: life insurance as a cost-effective strategy’ in IFA Magazine by Holly Hill

Published On: 10 January 2023


A cost-effective inheritance tax (IHT) strategy is a vital part of long-term estate planning. It is especially important for high-net-worth clients, for whom the tax implications of poor planning can be huge.

Lowering the value of a client’s estate through gifting is a tax-efficient way to reduce their IHT liability. But as their adviser, how can you ensure that those key assets which can’t be gifted, normally because of CGT restrictions or because the client needs access to maintain their lifestyle, are still protected until their death?

A combination of insurance products over varying term lengths provides a cost-effective solution

For high-net-worth clients, a potential IHT liability could run into the tens of millions and a single guaranteed whole-of-life plan to cover the entire liability will be very expensive.

An alternative strategy is to divide the liability over several insurance plans, combining guaranteed whole-of-life and fixed-term plans of varying lengths.

So how might this work in practice?

Our strategy in action: A case study

Our clients are two 60-year-old high-net-worth individuals who are married and both non-smokers. Their estate is in excess of £25million and the IHT liability therefore stands at £10 million.

We plan to help them gift the majority of their assets during their lifetime so that by the time they are in their mid-80s to 90s they will have tax-efficiently gifted more than half of their estate. Their key assets however, including their primary residence and investment portfolio, will be retained by them, and therefore liable to IHT, until death.

Our solution is to arrange a series of joint-life policies; some shorter term covers for £4m each through to age 85 and 90 to protect the assets that are likely to be gifted, as well as a £2m whole of life plan to protect £5m of retained assets against IHT until death.

Covering just £2m, rather than the full £10m liability, on whole of life basis will be much less costly.

Our split-cover plan lowered the total cost from around £147,500 to just over £67,600 – a total saving of almost £80,000 per year, making this a much more affordable solution for our clients.

Additionally, we would also typically look for insurers that offer a “carve-out” facility. This feature allows clients to convert some of their term cover into gift inter vivos cover in the future, matching a decreasing sum assured to the seven-year taper relief on the gift. The major benefit here is that the cover can be converted without any further medical underwriting.

Finally, it is sometimes worth recommending to clients that they further split each plan into smaller amounts – for example the £4m to age 85 policy could be split into four plans of £1 million each. This allows the covers to be assigned to different trusts, enabling your client to make use of the Rysaffe principle, with each new trust having its own £325,000 IHT exemption. Splitting policies down also enables different people to pay the premiums. This might be a client’s children, extended family, or a trust.

Overall, in our case study example, the split strategy saved our client nearly £80,000 a year on a £10 million liability while still protecting key assets for life. What could it do for your high-net-worth clients?  


Article written by Holly Hill, specialist Broker for landed estate clients at John Lamb Hill Oldridge. Published in IFA Magazine, 15th November 2022.


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