Who is Whole of Life for?

From April 2027, some big changes are coming to Inheritance Tax (IHT) in the UK, and they could have a real impact on families looking to pass on their wealth. One of the biggest shifts is that unused pension pots will be included as part of your estate, which means they could now be subject to Inheritance Tax (IHT). When you combine this with rising house prices, it’s easy to see how more and more families could find themselves crossing the ‘million-pound’ threshold for inheritance tax.

What does this mean for you?

Right now, pension funds sit outside your estate, which has allowed some people to use them as a tax-efficient way to pass money down to the next generation. But the government is closing this loophole, meaning that if your total estate—including your home, savings, and pension—exceeds £1 million (as a married couple or those in civil marriages), your beneficiaries could face a 40% tax bill on anything over that amount.

You may be affected by these changes if:

• You want to leave a financial legacy for your children or grandchildren.
• The combined value of your property, investments, and pension pot could push you over the £1 million IHT threshold – this is made up of £325k each for the “nil rate band” and a further £175k each for the “residential nil rate band”.
• You’ve been contributing to your pension with the intention of passing on a lump sum.
• You own a family farm or business and are concerned about the financial impact of IHT.

How Whole of Life Insurance can help

If you’ve been relying on your pension as a way to pass down wealth tax-free, these changes might be frustrating. But there is another option: Whole of Life Insurance.

The idea behind it

One way to work around the new rules is by using some (or all) of your pension pot to buy an annuity—which guarantees you an income for life. You can then use this income to fund a Whole of Life Insurance policy for the same amount as your pension pot (or any amount you choose). If the policy is written in trust, it falls outside your estate, meaning it won’t be subject to IHT. So when you pass away, the payout goes directly to your beneficiaries, tax-free.

What is Whole of Life Insurance?

Unlike traditional life insurance, which runs for a set term (often ending by age 89), a Whole of Life policy lasts your entire lifetime. These policies can be taken out up to the age of 79 and provide peace of mind that your loved ones will receive a lump sum, no matter when you pass away.

To protect against inflation, you can also link both your annuity and the policy payout to the Retail Price Index (RPI). This helps to ensure that the money your family receives retains its real-world value over time.

Who should consider a Whole of Life policy?

1. Homeowners with rising property values
   The UK housing market continues to grow, with prices expected to rise by around 23.4% in the next five years. If your home is currently worth between £700,000 and £800,000, it may not be long before your estate crosses the £1 million IHT threshold.
2. People with large pension pots
   If your pension is a key part of your inheritance planning, you may need to rethink your strategy. A Whole of Life policy could be a way to pass on that value without facing a hefty tax bill.
3. Business owners and farming families
   With potential changes to IHT rules affecting business assets and agricultural land, families who want to keep their business intact might consider Whole of Life Insurance as a way to cover any tax liability.
4. Individuals aged 40+ planning for the future
   If you’re in this age group and have accumulated wealth that you’d like to pass on tax-efficiently, taking out a Whole of Life policy now could save your beneficiaries thousands in the future.

Making it work for your estate plan

• Writing the policy in trust: This ensures the payout stays outside of your estate, so your loved ones receive the full amount tax-free.
• Funding the premiums: If possible, use your own estate to pay for the premiums rather than relying on your children to fund it.
• Reviewing your plan: As house prices and tax laws change, it’s worth checking in with a financial advisor regularly to make sure your arrangements still work in your favour.

Final thoughts

With inheritance tax rules tightening and property prices on the rise, more families are likely to be affected in the coming years. Whole of Life insurance offers a smart way to safeguard your legacy and ensure your children or grandchildren receive what you’ve worked so hard to build. If you’d like to explore your options, speaking to a financial advisor could help you put the right plan in place.

Please note: Estate Planning is not regulated by the Financial Conduct Authority.