Category: Specific protection products · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-10
Inheritance tax (IHT) cover is the colloquial term for life assurance, typically written in trust on a permanent (whole of life) basis, taken out to fund the IHT liability that will arise on the policyholder’s death. The cover provides liquidity at the moment of death so that beneficiaries are not forced to sell estate assets quickly or borrow at high cost to pay the IHT bill. IHT cover is widely used by individuals with estates above the nil-rate band threshold (£325,000 standard plus £175,000 residence nil-rate band, totalling up to £500,000 per person from April 2020).
Category: Specific protection products Also known as: IHT cover, IHT planning insurance Nil-rate band: £325,000 standard + £175,000 RNRB Related concepts: Trust written whole of life, Joint life second death, Whole of life cover, Increasing whole of life
IHT cover is normally written on a permanent basis (WoL or extended term) because the date of the IHT-triggering event (death) is unknown. For married couples and civil partners, the cover is usually JLSD because the IHT liability typically arises on the second death after the spousal exemption.
The IHT charge arises under the Inheritance Tax Act 1984. The basic rate is 40% (with a 36% reduced rate where 10% or more of the net estate is left to charity). The nil-rate band has been frozen at £325,000 since 2009 and is currently frozen until 2030 (Finance (No. 2) Act 2023, as extended). The residence nil-rate band (RNRB) of up to £175,000 was phased in from April 2017 and tapers above £2m estates.
IHT cover is calculated by estimating the future IHT liability after taking into account the nil-rate band, RNRB, exemptions and reliefs. The cover is typically index-linked to maintain real value. The cover is written in trust to keep the proceeds outside the deceased’s estate.
A married couple in their early 70s have an estate of £2m comprising £600,000 of business property qualifying for BPR, £900,000 main residence and £500,000 investments. After spousal exemption, BPR, NRB and RNRB, the estimated IHT liability on the second death is approximately £160,000. They take out a £200,000 (indexed) JLSD WoL policy in trust. Premium £180 per month, funded within the normal expenditure out of income exemption.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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