Get a life... insurance policy
Have you got one? A life insurance policy? Do you not want your loved ones to be looked after in the event of your untimely death? Or do you just not like them that much...
Many people either have, or are thinking about getting a life insurance policy- some mortgage providers insist on it, but even if not, given how devastated your wife/husband/dog is going to be without you, a little nest egg to pay the mortgage off or keep them going might be a nice idea.
So, you buy an insurance policy for £150 grand. This means that your crying relatives will get £150 grand doesn’t it. Er, not necessarily.
You see, if you just buy a policy in your own name, the proceeds are yours, not theirs. This means that they will become part of your taxable Estate when you die. And that means that you may have to pay inheritance tax of up to 40% on that cash.
Before you start panicking, everyone will have a nil rate band, assuming you haven’t already made large gifts, of up to £325,000, but after you’ve taken your house out of it, there may not be quite so much left as you thought. And leaving your family £90,000 is quite different to the £150,000 you thought you were leaving.
But never fear, BitterWallet is here. There is a simple and easy procedure which means your insurance payout is not yours, and so cannot be liable to inheritance tax on your death. But insurance companies will never tell you about it. You have to tell them.
What you need to do is get the policy written in trust. That might sound scary, but all it means in practice is that you fill out another form. What you are doing, is getting your wife/husband/dog to insure your life, but that you will pay the premiums on their behalf (which you can do under IHT rules). Your wife/husband/dog is then the beneficiary of the policy and will receive 100% of the cash. Simples.
Note that the beneficiary of the policy has to have an insurable interest in you- husbands and wives, children and even business partners are fine, but your grouchy neighbour down the road is not. Theoretically your dog would have an insurable interest, after all it is dependent on you, but unfortunately most* dogs cannot sign legal documents.
So there you have it. A huge tax saving from your friendly neighbourhood BitterWallet. For free. Unless you want to pay me...
*there might be one. How do you know there isn’t.