Protecting Your Estate Against IHT Exposure
Rob Houghton · Posted on: September 12th 2025 · read
Reforms to Inheritance Tax (IHT) announced by the Chancellor in the Autumn Budget last year met with concerns from families, individuals and business owners, who could find their estates exposed to huge tax bills. Amidst frozen IHT thresholds, rising property values, and limited reliefs, it is crucial to consider how best to protect your financial legacy and pass it on efficiently.
Life insurance, whether term assurance or whole-of-life cover, can play a powerful role in your estate planning strategy. Each type of insurance works differently, but both can provide a safety net to ensure your loved ones receive the full benefit of your estate, rather than a significant share being lost to HMRC.
When it comes to managing IHT on your estate, two of the most common types available to use are:
To protect your estate from an IHT liability on death due to the size of your estate, you should consider carefully your needs and goals.
Given the cost of insurance has increased, much like other daily expenses, it’s more important than ever to understand how you could meet your budget needs, whilst still trying to shelter your estate from the financial implications of IHT.
What are the differences?
Term Assurance
If you pass away during a set term, your beneficiaries receive a lump sum payout. If you outlive the policy, it expires with no payout. Why choose term assurance?
Cost-effective coverage
Premiums are generally lower than whole-of-life policies, making it ideal for young families or individuals on a budget.
Tailored to financial obligations
It’s perfect for covering time-bound liabilities like a mortgage, children’s education, or income replacement during working years.
Simplicity
With straightforward terms and fixed premiums, it’s easy to understand and manage.
Term assurance is useful for those who want protection during a set period. For example, protection for a debt such as a mortgage, or a parent with young children might choose a 20-year policy to ensure a private education for them, as well as to support their family until the children are adults.
Whole-of-Life Insurance
Whole-of-life insurance, as the name suggests, covers you for your entire life, as long as premiums are paid. It guarantees a payout whenever you die, making it a powerful tool for long-term financial planning. Therefore, it tends to better suit lifetime financial security and legacy planning. Why choose whole-of-life insurance?
- Guaranteed payout Your beneficiaries will receive a lump sum regardless of when you pass away.
- Estate planning It can help cover IHT liabilities, ensuring your estate is passed on smoothly.
- Wealth transfer You can leave a financial legacy for children, grandchildren, or charitable causes.
- Cash value component (in some policies) Certain whole-of-life plans build cash value over time, which can be borrowed against or withdrawn.
Whole-of-life insurance is useful for individuals who want to ensure their loved ones receive financial support no matter when they die, or who are concerned about the tax implications of their estate.
Pause for thought
Given the cost of whole-of-life insurance over the potential life expectancy of an individual or couple, the cost can be significant. Particularly as it may well continue to rise in cost for a variety of reasons, making it more expensive as the individual gets older.
What has been used of late however, is the thought of “buying time” i.e. using insurance cover as a short-term measure to cover the potential inheritance tax (IHT) bill now, whilst gradually reducing the size of your estate through gifting (using the 7-year rule for PETs), or “spending down” assets.
Buying time in this way means that IHT liability could potentially be whittled down to a lower value to reduce one’s estate exposure to IHT and allows for longer-term estate planning strategies to be implemented, which would reduce or eliminate the liability altogether.
Will Johnstone, Tax Partner at MHA, recently commented to the Financial Times that “the potentially exempt transfer rule (the ability to make gifts without an immediate tax liability to HMRC) is perhaps one of the greatest estate planning tools available to us.” It could be argued that the temporary protection of personal life protection could perhaps be the stabilisers to the gifts!
Which option Is right for you?
Finally, the question may not be whether you need protection, but rather, which form of protection best suits your circumstances. Choosing between term assurance and whole-of-life insurance depends on your attitudes, financial goals, age, health, budget, and possibly other factors.
Term assurance offers affordable peace of mind during critical years, buying you time to reduce potential IHT exposure through gifts or estate planning.
Whole-of-life insurance provides enduring security and legacy benefits (although so too can term assurance potentially, if used in the right way). It ensures a guaranteed payout whenever you die, helping to meet IHT liabilities head-on and safeguard the legacy you want to leave.
With tax thresholds unlikely to rise anytime soon, and the value of estates continuing to grow, there is a real risk in doing nothing. By planning ahead, you can make sure it’s your family who benefits most from the wealth you’ve worked hard to build.
How MHA Wealth Can Help
Our independent financial advisors can help guide you through the available providers and options for life insurance to ensure you make the right choice.
Should you wish to explore this matter in more detail, or for other investment and financial planning needs, please contact the author of this article Rob Houghton or a member of the MHA Wealth team, for further guidance.
Important information
MHA Wealth is the trading name of MHA Wealth Ltd, a company registered in England (1916615) with registered office at The Pinnacle, 150 Midsummer Boulevard, Milton Keynes, MK9 1LZ. MHA Wealth is authorised and regulated by the Financial Conduct Authority (FCA) with registered number 143715 and is a member of the London Stock Exchange. MHA Wealth is a member of the MHA group. Further information on the MHA group can be found at https://www.mha.co.uk/details-of-mha-uk-entities.
This is a marketing communication for general information only, and is not intended to be individual investment advice, a recommendation, tax, or legal advice. The views expressed in this article are those of MHA Wealth or its staff and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. In particular, the information provided will not address your personal circumstances, objectives, and attitude towards risk.
This information represents our understanding at the time of publication of current law and HM Revenue & Customs practice. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. You are therefore recommended to seek professional regulated advice before taking any action.
