‘Opportunities for the life insurance industry from Budget proposals’ by Paula Steele published in Cover Magazine

The Autumn Budget on 30 October confirmed the changes for non-dom  clients proposed by the Conservatives last March. In addition it introduced sweeping changes to IHT with pension funds, agricultural land, business assets and AIM shares  now falling into charge for IHT.

For many clients, life insurance will be the most effective way for planning for the payment of IHT as it provides cash flow when the liability triggers, either on death on an estate or within the seven years post lifetime gifting.

The changes for non doms

Most “non doms” appear to be relatively sanguine about the increases to income and capital gains they will now bear from the end of year four of residency but are much less sanguine about the IHT that they will now have to pay on the trusts set up while they were non doms, or indeed before they arrived in the UK, once they have been in the UK for 10 years.

Non doms will have to pay IHT on their worldwide assets once they been resident in the UK for 10 years, and on their UK assets from the date they acquire them.  Many of these clients won’t be permanently in the UK and advisers need to work with them to work out what the liabilities are, and how long they are likely to continue for.

Some clients expect to leave before April 2025 – these clients will have a three year tail on any chargeable assets that leave with them – of course, if they maintain assets in the UK (typically property) then they will need to provide for the IHT on those assets for the long term

Clients who are leaving the UK will need to take out cover before they leave, as UK insurers will not insure (except in very limited circumstances) clients who are not UK resident – UK passport holders who are non-resident, but planning to return, can usually obtain cover but insurers accept/refuse on a case-by-case basis.  If clients are going to live in a war zone, e.g. Ukraine, Israel or Lebanon, are unlikely to be able to obtain cover and this will need to be disclosed.

If clients have left the UK, or indeed were never in the UK, and need cover for IHT on UK assets then cover will need to be acquired in the international market or in the US/Bermuda markets which is likely to be more complex and certainly the international and Bermuda markets are significantly more expensive.

The changes to APR/BPR

These are not due to come into effect until April 2026 and we thought that clients would work through their planning and look to buy insurance cover for these new liabilities in Autumn 2025. However this is not the case, we are finding a lot of interest from this sector.  It is difficult to quantify the liabilities as they may well change between now and legislation being effected.

Farming families are very concerned and are looking to buy cover now on the grounds that it will be less expensive now than in 18 months’ time – however insurers require financial underwriting (i.e. justification for the sums insured)  for covers in excess of £2.5/£3million. While some insurers will allow a degree of flex around this they need justification of the bulk of the cover being sought.

If Gifts (PETS) are being made now then they will qualify for APR/BPR. But for gifts post 30 October, 2024, if the client dies  post 5 April, 2025 but within the balance of the seven years then the gift will be chargeable on the new basis of chargeable assets, albeit with taper allowance.  Many clients may want to make these gifts, if cover exceeds the financial underwriting limits, then the balance of cover will have to be obtained post 5 April 2026.

The changes to Pensions

It is proposed that pension funds will come within the ambit of IHT from April 2027 and these proposals are out for consultation.  Many clients are going to be impacted by this and the whole basis of pension planning will need review – clients who were expecting to leave their pension funds intact to their beneficiaries, therefore deferring taking pension commencement lump sums, will need to consider whether this is still appropriate and will need to consider using the  pension fund for income rather than as part of their IHT planning.

Those who have significant funds which will fall into the net will need to consider taking out cover and perhaps using the income to fund it.

The industry faces a complex and evolving landscape that requires proactive measures.

The Budget proposals bring significant changes for the life insurance industry, impacting non-dom clients, agricultural land, business assets, AIM shares and pension funds. Clients will need to carefully consider their IHT planning and may require cover to mitigate the new liabilities.