If you're a property owner in the short-term rental market, you’ve likely built a valuable asset that you want to protect for your loved ones. But have you considered how inheritance tax (IHT) might impact the legacy you leave behind? In the UK, IHT can take a substantial slice of your estate – up to 40% – over a certain threshold. Fortunately, there are strategies to mitigate this tax, and we are here to help (writes Howard Reuben, Principal, HCH Financial Services).
Most people know HCH Financial Services as a trusted mortgage expert, with over 31 years in the business. However, we also bring extensive expertise in life insurance planning, having arranged hundreds of millions of pounds in life insurance cover for individuals, families, and businesses. Our goal is to ensure that your financial planning is comprehensive and considers every aspect of your estate.
Why life insurance matters in IHT planning
When we first meet new clients, one of the first questions we ask is whether they have life insurance. Sometimes, the answer is yes (though often it’s no or not enough). But even if a policy is in place, it’s crucial to ask: is it set up correctly? Specifically, is it placed in trust? This small detail can make a big difference in how much of your estate reaches your intended beneficiaries and how much goes to HMRC.
A life insurance policy held in trust means the payout goes directly to the chosen beneficiaries, bypassing the estate. If the policy isn’t in trust, the proceeds become part of the estate, which could lead to three significant issues:
1. Inheritance tax impact: The life insurance payout could be subject to IHT, reducing its value significantly.
2. Distribution delays: If the estate is contested, beneficiaries may face delays in accessing funds until probate is granted.
3. Control issues: The funds may not go to the people you intended if the estate distribution is challenged.
The cost of ignoring IHT
The recent budget has made IHT thresholds and rules even tougher. For example, let’s say your estate is worth £1,325,000. Each person currently has a "nil-rate band" (NRB) of £325,000, meaning they can pass on this amount without IHT. But beyond that, IHT is charged at a hefty 40%.
For an estate of £1,325,000, you would subtract the NRB of £325,000, leaving £1 million subject to IHT. At 40%, the tax would amount to £400,000! That’s a significant portion of your estate that won’t reach your loved ones.
The solution: life insurance in trust
Setting up your life insurance policy in trust can help to avoid these issues. Here’s how:
Avoid IHT on payouts: since the policy is held outside the estate, it isn’t included in IHT calculations.
Direct distribution: the payout goes straight to your beneficiaries, with no need for probate or potential delays.
Peace of mind: you control who benefits from the policy and know they will receive the funds quickly and efficiently.
At HCH Financial Services, we can review your current policies to confirm if they’re set up in trust. If you don’t have any policies in place, we’ll help you arrange life insurance with a trust from the outset, ensuring maximum protection and peace of mind.
How to get started
If you’re ready to secure your estate and save potentially 40% in inheritance tax, reach out to HCH Financial Services:
Call: 0333 1234 536
Email: advice@hchfs.com
And one final note: HCH Financial Services doesn’t charge an advice fee or a fee for setting up a trust with our life insurance policies. So, you can achieve peace of mind, knowing your estate is protected – at no extra cost.
Don’t leave your legacy to chance. Talk to us today, and let us help you build a plan that keeps your hard-earned assets where they belong: with the people you love.
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