 is often discussed in the context of mortgages, income replacement or family protection. Increasingly, it is also being drawn into 

 conversations. When structured correctly, it can provide critical 

 at death and prevent families from being forced into rushed or suboptimal decisions. When used in isolation, however, it 

 becoming an expensive sticking plaster rather than a coherent solution 

Should you consider life insurance to manage your inheritance tax bill?

The challenge is not understanding what life insurance does. It is understanding what role it should play. As 

, Chartered Financial Planner and Partner at 

, explains, “protection can be a complete solution, but if you try to use it that way, it becomes very expensive.” The real value lies in how it integrates with the rest of the estate plan, not in the policy itself.

Why Life Insurance Has Become More Relevant

 has always been an emotive subject, but its reach has widened significantly. 

 have remained frozen since 2009, while asset values, particularly 

, have continued to rise. At the same time, legislative changes mean more wealth is being drawn into the inheritance 

The result is a growing number of estates facing material inheritance tax liabilities, often without sufficient liquid assets to meet them 

. “The overall impact is more people are paying inheritance tax and the people that were already paying inheritance tax are effectively paying higher amounts,” Alex notes. In this environment, life insurance has become a practical tool for managing the consequences of tax, even if it does not reduce the tax itself.

UK inheritance tax captures record £6.7bn in 2022-23

Starting With the Liability, Not the Policy

One of the recurring mistakes in inheritance tax planning is jumping straight to solutions. Alex stresses that the process should begin with clarity. The first step is understanding the size of the estate, the nature of the assets, and the resulting inheritance tax exposure.

Only once that figure is established does the real planning begin. “We always ask how comfortable someone is with the inheritance tax liability they’re facing,” she explains. For some families, paying tax is acceptable. For others, reducing it as far as possible is the priority. Most sit somewhere in between.

This distinction matters, because life insurance does not mitigate inheritance tax in the technical sense. It funds it. Whether that is appropriate depends on affordability, objectives and the alternatives available.

Where life insurance is used for inheritance tax planning, it typically falls into one of two categories: whole-of-life assurance or term assurance.

Whole-of-life policies are designed to pay out whenever death occurs, provided premiums are maintained 

. This certainty makes them attractive for inheritance tax planning, but that guarantee comes at a cost. Term assurance, by contrast, only pays out if death occurs within a specified period. Because it is not guaranteed, it is significantly cheaper 

Life insurance and tax

Wealth advisers turn to insurance as inheritance tax bills rise

Alex illustrates this with a practical example. A married couple aged 70 with a £2 million estate could face an inheritance tax bill of £400,000 on second death. A whole-of-life policy to cover that liability might cost around £700 per month on standard terms. A term policy over 18 years covering the same amount could reduce the premium to around £250 per month.

The trade-off is clear. Certainty costs more. Flexibility costs less, but carries the risk that the policy expires before it is needed.

Life insurance works best when it supports other planning strategies rather than replacing them. 

 structures all interact with inheritance tax exposure over time 

Life policies are often used as inheritance tax mitigation devices

If a family plans to reduce their estate through lifetime gifts, the inheritance tax liability should fall gradually. In that context, a term policy can act as a temporary backstop, covering the risk that death occurs before the strategy has had time to work. As Alex puts it, “it’s usually a blended approach, not a single solution.”

This also addresses one of the most common objections to insurance: the perception of premiums as a sunk cost. By modelling breakeven points and showing how insurance protects against specific risks rather than abstract outcomes, planners can help families understand its role more clearly.

For many estates, inheritance tax is not just a tax issue but a liquidity issue. Property wealth, in particular, can leave families asset-rich but cash-poor.

Inheritance tax is generally payable within six months of death. Where most of the estate value is tied up in the family home, executors may be forced to sell quickly to raise funds. Life insurance can prevent this outcome by providing immediate liquidity.

The effectiveness of this strategy depends on the policy being written into trust. When held outside the estate, insurance proceeds can be paid quickly without waiting for probate, allowing tax to be settled while preserving the underlying assets. “That speed can make a critical difference,” Alex explains.

Why Insurance Should Not Be Sold in Isolation

Life insurance is often offered opportunistically, bundled with mortgages or introduced by advisers who are not overseeing the full financial picture. This is where problems arise.

Inheritance tax planning is interconnected. Gifting affects affordability. Spending affects sustainability. 

 affect future estate values. Insurance affects cash flow. “Everything has knock-on effects,” Alex says, which is why protection needs to be considered within a wider financial plan, not bolted on as an afterthought.

Used correctly, life insurance provides certainty where uncertainty would otherwise force compromise. Used poorly, it adds cost without solving the underlying issue.

Life insurance can play a valuable role in inheritance tax planning, particularly where liquidity is a concern or where strategies need time to work. It does not reduce tax, but it can protect families from the consequences of poor timing, 

Its effectiveness depends entirely on context: the size of the estate, the nature of the assets, the affordability of premiums and the wider planning strategy. As with all estate planning tools, the question is not whether it works in theory, but whether it works in this family, at this point in time.

Life insurance in inheritance tax planning

 provides immediate liquidity to pay inheritance tax, helping families avoid forced asset sales and protect long-term wealth.

Whole-of-life and term insurance play different roles

, with whole-of-life covering permanent inheritance tax exposure and term insurance supporting time-limited estate and inheritance tax planning strategies.

Life insurance does not reduce inheritance tax

 but offers effective wealth protection where estates are asset-rich and cash-poor.

Writing life insurance into trust is critical

 to keep proceeds outside the estate, enabling fast payment and improving inheritance tax and estate planning outcomes.

Life insurance works best within a wider plan

, alongside gifting, spending and investment decisions, rather than as a standalone inheritance tax solution.

The Role of Life Insurance in Managing Inheritance Tax

Alex has experience partnering with high net worth individuals, business owners and families interested in intergenerational planning. Seeking first to understand her clients’ aspirations to gain a deep understanding of what they hope to achieve, she designs tailored plans with her clients’ end goals at the forefront.

With expertise in cash flow modelling, Alex is adept at providing specialised advice to ensure her clients achieve their long term financial aims.

Her knowledge of investments, pensions, estate planning, and protection means she is well-versed in adapting plans over the course of her clients’ lives.

Alex has over a decade of experience working in finance, working for top tier institutions JP Morgan and HSBC. She has achieved the gold standard Chartered status and has completed the Certificate in Financial Wellbeing.

Chartered Financial Planner, Partner

Alex Pugh

Saltus' investment management arm was founded in 2004, over the years they have realised that providing award-winning investment management is just one of the ways they can help clients achieve their aspirations. Saltus Financial Planning was launched in 2015, with the aim of being an industry leader in providing financial advice, so clients can rest assured their money is being looked after by experts. The Saltus Group now employs over 450 people and has the privilege of looking after over £10.5bn for their clients.

Saltus Financial Planning is a "Chartered" financial planning firm. They are experts at creating financial plans for clients at every stage of life. Their mission is to help you take control of your finances. Saltus can help you map out your financial and life goals, and ensure that you have a plan that will deliver them. They will help you to navigate the complex landscape of the investment world and assist with structuring your investments in a tax-efficient manner. 

Saltus Financial Planning creates a personalised and collaborative financial plan with you by listening to, and understanding, your needs and then applying their knowledge and expertise. This not only ensures your money continues to deliver for you but also builds lasting personal relationships based on trust and experience.

As an independent financial planning firm, they are able to provide objective advice that is aligned with your best interests. They can offer the best of both worlds, either selecting from in-house investment strategies managed by Saltus Asset Management or from an alternative provider, depending on your objectives.

Saltus constructs and manages portfolios centrally under the direction of the Investment Committee (IC). The IC is the decision-making body responsible for all aspects of portfolio management. Centralising control of portfolios helps them to control risks in the broadest sense and help achieve consistency of outcomes for clients. 


Saltus has a 5-stage investment process: 
1. Asset allocation: Unlike their peers, they do not operate within a constrained fixed asset allocation environment and instead use volatility parameters to guide the risk level of our mandates. However, asset allocation is a significant input and is continually reviewed and updated as markets develop. Allocation is derived from 4 primary sources: The knowledge and experience of their investment team, third party data providers, they use a range of data providers and external analysts, their fund manager network and bespoke, in-house, macro analysis tools.


2. Fund selection: They employ a "5 factor" process to calculate a manager’s average yearly alpha (or outperformance) and importantly, how volatile the manager is in delivering this outperformance. Targeting steady delivery of alpha rather than managers who enjoy the occasional purple patch, then go quiet for several years. The more consistent a manger is in delivering alpha, the greater confidence Saltus has in assessing the chances of them delivering this in the future.


3. Portfolio construction: Client portfolios are grouped into 5 core risk bands, characterised by their volatility of returns relative to the equity market. Each band can incorporate instruments with differing investment styles or objectives, but also possess common risk characteristics. Saltus Believes that portfolios are best constructed by identifying and investing alongside specialist managers in each asset class. As mentioned, they look to access the widest possible set of opportunities across asset classes, investment styles and geographies. When finalising portfolio construction, they will also consider diversification within an asset class to ensure maximum risk-adjusted diversification is achieved.


4. Monitoring and feedback: Using bespoke analysis tools and systems, Saltus monitors portfolios in real-time, allowing them to act swiftly to changing market conditions when required.


5. Reporting: All monitoring and feedback is reported on a weekly basis to their investment committee who implements any required changes.

Saltus

Adam is passionate about developing long standing relationships with his clients. He advises entrepreneurs, professionals, trustees, and retirees in various stages of life, but they all work closely with Adam to understand how best to preserve or grow their wealth. Managing his clients’ wealth typically involves much more than asset allocation. Adam spends time developing a deep understanding of what’s important to his clients before investing their funds to help them achieve it. He also works closely with clients’ lawyers and accountants to reach optimal outcomes and has regular discussions with younger family members to engage the next generation. Adam is a CFA Charterholder, is a Chartered Fellow of the CISI and has a degree in Economics.

Investment manager

Alex has experience partnering with high-net-worth individuals, business owners and families interested in intergenerational planning. She seeks first to understand her clients’ aspirations and goals to gain a deep understanding of what they hope to achieve. With specialist experience in cash flow modelling, Alex then designs tailored plans with her clients’ end goals in mind. Her knowledge of investments, pensions, estate planning and protection means she is well-versed in adapting plans over the course of her clients’ lives. Alex has over 15 years’ experience working in finance, working for top tier institutions JP Morgan and HSBC. She has achieved the gold standard Chartered status and has completed the Certificate in Financial Wellbeing. She firmly believes a well-structured financial plan has a positive correlation with one’s overall happiness.

Chartered financial planner

Alistair takes real pride in helping his clients to work out what they would ideally want for the rest of their lives and building close relationships to work together over the long term. Alistair believes that building a plan to show clients what their financial future might look like under various scenarios helps clients to take control of their financial decisions. This planning then helps to guide the way to the most appropriate investment solutions, so clients know their investments have been put together with their own financial goals and risk profile in mind. Alistair has extensive experience in helping clients improve their relationship with their wealth to maintain the lifestyle they want without having to worry unnecessarily about running out of money.

Alistair holds the designation of chartered financial planner, which is the highest recognition an adviser can achieve and shows a high commitment to ongoing study and professionalism. Having graduated from the University of Leeds with an undergraduate degree in Mathematics and Management Studies in 2001, Alistair has worked in financial services for over 20 years. He holds the advanced qualification for pension specialists and advises clients on pensions and investments as well as estate and tax planning.

Partner and Chartered Financial Planner

Gianpaolo (‘GP’ to most) works differently to much of the industry. Initial conversations deliberately try to avoid all matters financial. He is far more interested in the aspects of your life that make up who you, and your family are, and importantly, how you’d like your future to look. Ultimately, he works with you to help understand and plan how your specific aspirations can be better aligned with your finances. This allows your planning and decisions then made with greater clarity. Gianpaolo was a founding member of the Institute for Financial Wellbeing and was in the first cohort to attain the Certificate in Financial Wellbeing. He uses these insights when providing strategic, reality-focused advice. He is particularly attuned to the needs of successful executives and business owners – especially at life’s key transitions. Interactive cashflow modelling is used to help bring context to your decision-making process and bring to life your specific aspirations during your future life stages. GP has worked in financial services since 2001 and became a Chartered Financial Planner in 2008. He founded Higgins Fairbairn Advisory LLP, one of fewer than 300 Chartered Financial Planning firms, in 2010 before merging with Saltus in May 2022.

Jack works with individuals and families to provide pensions and investment advice in line with their needs and objectives. Jack has a focus on helping both employers and employees to navigate complex pension schemes. He also brings particular expertise in using appropriate tax vehicles to help those accumulating wealth, as well as structuring assets for individuals looking to draw a tax-efficient income in retirement. 

Jack joined Saltus in 2017 and has considerable experience having worked in the industry for almost 10 years. He is also one of the most qualified planners in the UK, having achieved chartered status in 2022.

Financial adviser

Lawrence provides a range of pension and investment advice. Whilst Lawrence supports individuals in numerous contexts, he primarily supports HNW individuals and senior executives with their retirement planning and complex tax arrangements. He is also highly experienced at providing specialist advice for Court of Protection cases and personal injury awards. 

To meet his clients’ objectives, Lawrence focuses on creating financial strategies that are flexible and sensitive to changes in circumstances. He works closely with clients to provide investment and planning advice to ensure their income and capital needs are met throughout their lifetime. A keen advocate of cashflow modelling, Lawrence believes it is essential to presenting a clear financial strategy.

Partner and financial adviser

Megan provides specialist advice to private clients on pensions and investments, as well as estate and tax planning. She works in partnership with her clients to ensure she fully understands their individual circumstances and aims to build long term relationships to ensure their goals are met both now and in the future.

Megan has particular expertise in supporting business owners, HNW individuals and senior executives with their retirement planning and complex tax arrangements. She also assists clients going through divorce, helping them reach financial settlements that are right for their needs and objectives.

After obtaining a Masters in Banking and Finance, Megan joined Saltus in 2015. Megan attained the highest level of qualification possible when she achieved chartered status and is a member of Resolution. She is also highly recognised in the industry having been selected as Citywealth’s Woman of the Year 2022.

Pete supports individuals in numerous contexts but his book of clients consists primarily of company directors and senior executives. He specialises in retirement planning and complex pension advice as well as tax-efficient structures and estate planning.

He is a first-class communicator and is highly experienced at cashflow modelling, which enables him to deliver insightful lifetime plans for clients. He strongly believes that helping clients envisage and stress test their financial plan is the key to helping them make informed financial decisions. Pete has worked in the industry for over 13 years and holds a Diploma in Regulated Financial Planning.

Phil has a no-nonsense approach, always helping clients to focus on the bigger picture whilst he takes care of the details. He has a strong focus on managing wealth across families due to his empathetic nature and is known for his ability to provide imaginative, yet pragmatic, solutions. Consequently, Phil is regularly called upon to help business owners structure their affairs and often assists with complex pension arrangements and divorce cases.

Phil joined Saltus Investment Managers as a Partner in 2014 and was one of the founding members of Saltus Financial Planning.

He has almost 30 years of industry experience and now sits on Saltus’s Management Committee as head of our Financial Planning team. Early in his career, he worked for two specialist pension companies and was then seconded to help establish distribution in the Channel Islands for an offshore investment firm. He later left the corporate world to establish and run his own firm for 13 years before joining Saltus. Philip holds the highest level of Financial Planning qualifications attainable as a Fellow of the CII, in addition to holding numerous Investment Management qualifications.

Alex Pugh

Bio

Articles from author

The Role of Life Insurance in Managing Inheritance Tax

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Financial well-being

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Alex Pugh

Bio

Articles from author

The Role of Life Insurance in Managing Inheritance Tax

Start your journey to your Financial well-being

FIND OUT MORE

LEGAL

CONTACT US

Start your journey to your
Financial well-being