24/05/2026
Putting life insurance in trust
Recent tax changes have prompted some to reevaluate their reliance on pensions for wealth planning. Amidst this uncertainty, life insurance could provide some peace of mind for those looking to protect their family’s future.
Salary sacrifice changes
In the Autumn Budget 2025, Chancellor Rachel Reeves announced changes to salary sacrifice for pensions from April 2029. Currently, an employee can agree with their employer to give up part of their salary and, in return, their employer will pay the same amount into their pension. At the moment, this employer pension contribution is exempt from National Insurance Contributions (NICs) for both the employer and the employee. Salary sacrifice has therefore often been seen as a reliable way to reduce tax liabilities while boosting retirement savings. However, from 6 April 2029, NICs will apply on contributions above £2,000 per year.
Unused pension funds
As part of the Autumn Budget 2024, it was announced that most unused pension funds will fall within the value of a person’s estate for Inheritance Tax (IHT) purposes. This measure was introduced because the government identified that many savers were using their pension pot to transfer wealth instead of funding their retirement. The changes will come into effect on 6 April 2027, so those who had incorporated their unused pension funds into their tax planning are likely to be reconsidering their options.
Benefits of life insurance
The above tax measures have highlighted the precarity of using pensions for intergenerational planning. Some families may therefore be turning to life insurance to offer some certainty.
Life insurance provides financial support to your loved ones when you die. You can choose the level of cover you need based on a range of factors including your dependents, salary, mortgage and other bills.
Writing your life insurance policy in trust ensures that the payout is not considered as part of your estate, so it is not subject to IHT. Claims can be paid before probate is granted, enabling your beneficiaries to access the money swiftly. It is therefore a crucial way of safeguarding your family’s future.
Time to revisit your protection requirements?
We can help you source a life insurance policy that is tailored to your specific needs and family circumstances. There are a range of trusts to choose from, and we can advise on the most appropriate option, ensuring your cover remains effective, tax-efficient and aligned with your wider financial plan.
As with all insurance policies, conditions and exclusions will apply.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Sources:
https://www.ftadviser.com/content/a724d36a-6636-4b53-bcd2-5d354ef62fac
