The important role life insurance can play for high-net-worth and ultra-high-net-worth individuals following the proposed changes to Business Relief and non-domiciled tax rules

In the new Labour government’s Autumn Budget, Chancellor Rachel Reeves announced some of the biggest changes to tax rules for non-domiciled individuals for many years. As a result, many high-net-worth and ultra-high-net-worth clients are considering how to mitigate the tax burden on their assets.

Life insurance can be a cost-effective and helpful way to mitigate the impact of the new tax rules for these clients.

The new residency test could mean that non-domiciled individuals have a greater inheritance tax liability

Previously, for clients who are resident in the UK but not UK domiciled, UK inheritance tax (IHT) was payable only on their UK assets at a rate of 40%. However, new legislation announced in the Autumn Budget means that, from April 2025, the existing tax regime for non-domiciled individuals will be replaced by a residency test. Those who have been resident in the UK for at least 10 years will be liable for IHT on their worldwide assets, not merely their UK-based assets.

Additionally, the IHT tail has been extended. Current legislation stipulates a two to three year tail for non-domiciled individuals who have left the UK. From April 2025, this is expected to be extended to 10 years.

At John Lamb Hill Oldridge, we are working with a number of families and individuals to help them mitigate the impact of these tax changes on their wealth. Life insurance can provide a solution to ensure they can maintain control of their assets and create the liquidity to cover the IHT bill later on.

Many families who are choosing to stay are doing so to avoid disrupting their children’s education, planning to remain in the UK for some years before moving elsewhere. A term life insurance policy to cover the IHT liability until the client is outside the IHT tail is usually cost-effective, particularly for clients who are highly likely to outlive the term of the policy.

As well as offering a practical solution, the life insurance policy removes the need to gift assets in order to reduce the value of the estate to mitigate IHT. Consequently, everything can stay within the client’s control, giving them the flexibility to remain in the UK for as long as they wish.

If the client wishes to maintain property in the UK after they leave, a guaranteed whole-of-life policy can provide liquidity to cover this IHT liability. This can be taken out alongside a term life insurance policy for assets that will not be liable for IHT in the UK after the 10-year tail period.

Life insurance could help business owners mitigate the proposed changes to Business Property Relief from April 2026

A further announcement in the Autumn Budget was the proposed change to Business Property Relief (BPR).

Under current rules, you can receive up to 100% tax relief up to the limit of £10 million on a business or interest in a business, or shares in unlisted companies that have been held for a minimum of two years.

Under the new proposals, this could fall to 50% tax relief up to a threshold of £1 million. As such, any assets that qualify for BPR and exceed the £1 million threshold could be liable for IHT at an effective rate of 20%. This is a significant change from current rules, though it is important to note that the legislation is not yet finalised and may change before it is introduced in April 2026.

Life insurance can help individuals affected by this change by providing liquid assets to cover the IHT liability after the client dies, but there are some considerations to be aware of.

Firstly, in order to calculate the IHT liability and find the most suitable policy for the client, we require an accurate valuation of the business. The value of a business can change significantly over time and can be measured in several different ways, so it can be challenging to accurately value a business for this purpose.

Furthermore, the sum assured must be based on the business value at the time of taking out the policy. If the business grows in value over the subsequent years, the IHT liability could come to exceed the sum assured.

As such, though life insurance offers a cost-effective solution to the increased IHT liability, regular reviews are required to ensure that the policy continues to offer the required protection for the client.

Get in touch

Life insurance can provide a helpful and cost-effective solution to the changes to BPR and the tax regime for non-domiciled individuals. At John Lamb Hill Oldridge, our advisers are experts in offering bespoke insurance that supports high-net-worth and ultra-high-net-worth clients in protecting their wealth.

For more information about how we can help you to support your clients, please get in touch. Email [email protected] or call us on 020 7633 2222.

Please note

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.