Inheritance tax (IHT) is one of the most significant threats to family wealth in the UK. For many households, especially those with property, business interests, or investment portfolios, the potential tax bill can easily run into six or seven figures. Even families who do not consider themselves especially wealthy can find that rising property values push them over the available allowances.

The result is often an uncomfortable dilemma for the next generation: either sell assets to pay the tax, borrow at short notice, or accept that a large portion of the estate will be lost to HMRC. Fortunately, there are legitimate planning tools that can reduce this pressure and create certainty for families.

Whole of life insurance is one of the most straightforward ways to do this. When structured correctly, it can provide a guaranteed lump sum precisely when it is needed most, allowing heirs to pay the IHT bill without dismantling the estate. In this guide, we explain how IHT works in 2025, how whole of life policies can be used to meet the liability, and how Willow Private Finance helps clients design effective strategies alongside their advisers.

For broader context around high-net-worth planning, many clients also find it useful to read our articles on High Net Worth Mortgages in 2025: What Lenders Look for Beyond Income and Trusts and Property Finance in 2025: Lender Attitudes, Risk Appetite, and What’s Changing, which explore how lending and structuring considerations dovetail with estate planning.

Understanding Inheritance Tax in 2025

Inheritance tax in the UK is typically charged at 40% on the value of an estate above the available allowances. The core thresholds are the Nil Rate Band (NRB), currently £325,000 per person, and the Residence Nil Rate Band (RNRB), currently £175,000 when a qualifying residence is passed to direct descendants. Together, this means that a couple can potentially pass on up to £1 million without incurring IHT, assuming both allowances are fully available and correctly utilised.

The challenge is that many estates exceed this level once the family home, investment properties, business interests, and accumulated savings are taken into account. It is also common for clients to underestimate their eventual estate value, particularly where they expect pension funds, investments, or inherited wealth from their own parents to increase over time.

When the estate exceeds the available allowances, IHT is charged at 40% on the excess. That can create a substantial liability. For a £2 million taxable estate, for example, the IHT bill could easily be several hundred thousand pounds. Without planning, beneficiaries may be forced to sell assets at an inconvenient time or take on borrowing simply to pay tax.

Why Liquidity is the Core Problem

A recurring issue in IHT planning is that many estates are asset-rich but cash-poor. Family wealth is frequently tied up in property or private business interests that cannot easily be sold quickly or without discounting. When the tax bill arrives, executors may have limited liquid funds available.

This is particularly true for families with:

• A valuable main residence in the South East or other high-value areas
• Investment properties with strong capital growth but relatively modest rental yields
• Long-established family businesses that are not designed for quick disposal

In these cases, the underlying wealth may be significant, but it may not translate into immediate liquidity. Whole of life insurance directly addresses this issue by providing a predictable, tax-efficient cash sum specifically to meet the IHT bill.

How Whole of Life Insurance Works

A whole of life policy is a form of life insurance that provides cover for the entire lifetime of the insured person, rather than for a fixed term. As long as the premiums are maintained and the policy conditions are met, the insurer guarantees to pay out a lump sum when the insured person dies.

This characteristic makes whole of life cover fundamentally different from term insurance. Term policies are excellent tools for temporary needs, such as covering a mortgage or protecting income during working life. However, they will eventually expire. Whole of life, by contrast, is designed to be permanent. It is therefore uniquely suited to dealing with an eventual, certain liability such as inheritance tax.

The sum assured is chosen to match, or at least significantly offset, the estimated IHT bill. Over time, the policy becomes part of a broader estate planning strategy, providing heirs with a reliable source of funds upon death.

Using Whole of Life Policies for IHT Planning

The key to using whole of life effectively for IHT is ensuring that the policy proceeds are available quickly and are not themselves subject to inheritance tax. This is usually achieved by writing the policy into an appropriate trust. By doing so, the policy is owned and controlled separately from the estate, and the payout can be made directly to the beneficiaries or to trustees acting on their behalf.

When the insured person (or persons) dies, the trust receives the policy proceeds. These can then be used to pay the IHT bill or to reimburse beneficiaries who have paid the tax. The aim is to preserve other assets, such as the family home or investment properties, and avoid forced sales.

Whole of life policies can be set up on a single-life basis or on a joint-life basis. In the context of IHT planning for couples, joint life second death is often the structure of choice, as IHT typically becomes payable after the second person dies, assuming assets are passed between spouses or civil partners on the first death.

A Typical IHT Scenario

Consider a couple with a combined estate of £2.5 million in 2025. This might include a £1.2 million main residence, several investment properties, and a portfolio of savings and investments. After making use of their combined NRB and RNRB allowances, they might still face an IHT liability in the region of £600,000, depending on how their assets are structured and whether any other reliefs apply.

The family could attempt to address this through lifetime gifting, restructuring property, or gradually reducing the estate. However, each option has limitations. Gifts can trigger other tax consequences or may not be appropriate if the couple still needs access to capital. Restructuring may be constrained by lending arrangements or market conditions.

Instead, they might decide to put a joint life second death whole of life policy in place for £600,000, written into trust. On the second death, the policy pays out directly to the beneficiaries or trustees, who then use the funds to cover the IHT bill. The estate remains intact, the family avoids selling assets under pressure, and a known liability is matched with a known funding source.

Single Life vs Joint Life Policies

Deciding between single life and joint life cover is an important part of the planning process. Single life whole of life policies are typically used for individuals with more complex personal arrangements, where each party may have separate estate-planning needs or where there is a desire to create distinct benefits for different beneficiaries.

Joint life first death policies are more often associated with income or lifestyle protection. They pay out on the first death and are less commonly used for IHT purposes, as in many cases the IHT liability crystallises only after the second death, once assets pass outside the marriage or civil partnership.

For IHT planning, joint life second death is often the most relevant option. It ensures that the policy pays out when the tax becomes due and can be aligned with the couple’s will and trust arrangements. Willow Private Finance works closely with clients and their advisers to model the impact of different structures and to ensure that the policy matches the intended planning outcome.

Cost, Underwriting and Affordability

The cost of whole of life cover depends on several factors, including age, health, smoker status, the level of cover required, and the chosen underwriting basis. Younger and healthier clients generally have access to more competitive premiums. For clients in their 60s and beyond, it becomes especially important to structure the policy correctly, given the higher cost of cover at older ages.

Many clients elect to use guaranteed premiums, which remain fixed for life and provide certainty over future costs. Others may consider reviewable or flexible arrangements where the insurer can adjust premiums at specified intervals. The right choice depends on budget, estate size, and planning timeframe.

Affordability must be considered alongside the expected IHT liability. It is important not to over-insure or, conversely, to leave a significant shortfall. In practice, the policy might be designed to cover the full estimated liability or to provide a material contribution that, combined with other resources, is sufficient to meet the tax bill. Regular reviews are essential to ensure that the sum assured remains appropriate as the estate evolves.

Trusts, Wills and Wider Estate Planning

Writing a whole of life policy into trust is not merely a technical step. It is critical to ensuring that the strategy actually works when required. Without a trust, the policy proceeds could fall back into the estate, increasing its value and therefore the tax due. With a trust, the payout sits outside the estate and can be accessed more quickly, often before probate is completed.

The trust must be chosen and drafted carefully. The appointment of trustees, the identification of beneficiaries, and the powers granted under the trust all need to align with the client’s will and wider planning objectives. There may also be interactions with existing trusts or corporate structures, particularly for clients with family investment companies or property held in SPVs, as discussed in our article on Using Pensions in Property Investment and other strategic structures.

Coordination between financial planners, solicitors, tax advisers, and the broker arranging the protection policy is essential. At Willow, we regularly work alongside clients’ professional advisers to ensure that the policy, trust, and lending arrangements are fully aligned.

Involving Family and Executors

Inheritance tax planning is not purely a technical exercise. It also involves family dynamics, expectations, and communication. Many families prefer to bring adult children, executors, or trusted advisers into the conversation early so that everyone understands the rationale and the practical steps that will be required when the time comes.

A well-structured whole of life plan can provide reassurance on all sides. Parents know that their heirs will not be forced into a distress sale of the family home or investment properties. Beneficiaries know that the tax bill has been considered and that there is a mechanism in place to meet it. Executors know that liquidity will be available to administer the estate efficiently.

Policies should be reviewed periodically, particularly after significant life events such as property purchases, business exits, or inheritances. Regular reviews ensure that the level of cover, trust structure, and associated planning remain appropriate.

Alternatives and Complementary Strategies

Whole of life insurance is not the only way to manage inheritance tax, and it should not be considered in isolation. Other strategies include lifetime gifting, use of business relief, careful structuring of property ownership, and charitable giving programmes. Each has its own advantages, risks, and practical constraints.

Gifting can reduce the size of the estate over time but may require giving up control or access to capital. Business relief can be powerful for qualifying assets, but it depends on maintaining eligibility and may not cover all of the estate. Restructuring property ownership can improve efficiency but must be carefully managed in line with lender criteria and tax rules.

For many clients, the most effective solution combines several approaches. Whole of life cover is often used to provide certainty and liquidity, while other tools are deployed to shape the estate over the longer term. The right blend depends on the client’s appetite for complexity, their time horizon, and the nature of their assets.

How Willow Private Finance Can Help

Willow Private Finance specialises in complex, high-value and multi-layered cases where property, lending and protection planning intersect. In the context of inheritance tax, we help clients understand the size and timing of their potential liability, assess how it interacts with property portfolios and lending arrangements, and design whole of life solutions that sit comfortably within their wider financial plans.

We work with UK-based and international clients, including high-net-worth individuals, business owners, and families with significant property holdings. Our role is to navigate the protection market, identify suitable insurers, structure cover in trust, and liaise with your existing advisers to ensure a coherent, efficient outcome. Whether you are at the early stages of planning or revisiting an existing structure, we provide practical, whole-of-market guidance.

Frequently Asked Questions

Q1: How do I know if I have an inheritance tax problem?

You may have an IHT exposure if the total value of your estate, including property, investments, business interests, and savings, is likely to exceed available allowances. A professional review can help you quantify the potential liability.

Q2: Why is whole of life insurance better than term insurance for IHT planning?

Whole of life cover is designed to last for your entire lifetime and guarantees a payout on death, making it well suited to a tax liability that will definitely arise. Term insurance may expire before the liability falls due.

Q3: Does a whole of life policy always need to be written into trust?

For IHT planning, it is usually advisable to write the policy into trust so that the proceeds fall outside your estate and can be accessed quickly. The exact trust structure should be chosen with professional advice.

Q4: Are premiums for whole of life policies tax deductible?

Premiums are generally paid from post-tax income and are not usually tax-deductible. However, there may be planning opportunities, such as regular gifts out of surplus income, that can support premium payments efficiently.

Q5: What happens if my estate grows and the original policy is no longer enough?

Policies can sometimes be reviewed or topped up, or additional cover can be arranged. Regular reviews with your adviser help ensure that your cover remains aligned with your estate value.

Q6: Can whole of life insurance work alongside other IHT strategies?


Yes. Whole of life is often used alongside gifting, business relief, and property restructuring to provide a balanced and flexible approach to inheritance tax planning.

Want Help Navigating Today’s Market?

Book a free strategy call with one of our mortgage and protection specialists.

We will help you find the smartest way forward, whatever your legacy goals.