The clients were a couple, both in their 60s, who were British nationals and resident in the UK.
The couple’s estate is valued at £10 million. Their individual nil rate bands of £325,000 each could not be used in this case, and they were therefore facing the prospect of inheritance tax of 40% being charged on the full amount once the second client died, which would mean a £4 million IHT bill for their nearest and dearest at that time.
Tailored solution provided to client by John Lamb Hill Oldridge
Our adviser recommended a joint life insurance policy to address their needs. The policy was set up on a second death basis, as there would be no inheritance tax liability at the time of the first death. The sum insured was £4 million to cover the full potential IHT liability, and the term of the plan ends when the older of the two clients reaches age 90.
Neither client is a smoker, so the policy was set up on more favourable non-smoker rates.
The clients chose the indexation option, so both the sum insured and the premiums payable will increase by a set percentage each year. This should give them peace of mind that they will still be adequately covered, should the value of their estate increase in the coming years.
Our adviser made the clients aware that they should carry out some additional inheritance tax planning prior to the end of the term of this plan. This might, for example, involve making gifts to family members, friends, charities or anyone else they wish to benefit. One of the reasons for advising them of the need for additional IHT planning was that it was not possible to arrange a whole-of-life policy for £4 million, as the cost of this was in excess of the clients’ budget. However, while taking out a fixed term plan might not be regarded as a ‘permanent’ solution, it is much better that the clients have some form of insurance in place. Taking out a term plan then gives them time to make alternative arrangements or re-organise their affairs.
Advising on suitable life insurance to assist with inheritance tax planning is one of the principal services we offer here at John Lamb Hill Oldridge. As part of our commitment to ongoing service, we look forward to continuing to work closely with these clients in the coming years, as their needs and circumstances evolve