Life insurance in trust / IHT saving estimator
A life insurance policy written in trust generally falls outside your estate, so the payout may avoid Inheritance Tax that would otherwise apply. This tool illustrates the potential saving — it is not legal or tax advice.
Current nil-rate band: £325,000 (tax year 2026/27).
Assumptions and methodology
If the estate is likely to exceed the available IHT threshold, the illustrative IHT potentially saved = sum assured × 40% (the current IHT rate on amounts above the nil-rate band). The current nil-rate band is £325,000. Rates confirmed for tax year 2026/27 (source: gov.uk). This is illustrative — actual IHT depends on the full estate value, available reliefs, and trust structure.
Common mistakes to avoid
- ✕Assuming writing in trust is always beneficial — trusts have legal implications and are irrevocable in many cases.
- ✕Forgetting that unmarried partners may not benefit automatically from a policy without a trust.
- ✕Not updating the trust when your circumstances change (e.g. divorce, remarriage).
- ✕Treating this as a replacement for proper legal and tax advice — consult a solicitor.
Frequently asked questions
Writing a life insurance policy in trust places the policy outside your estate. When you die, the payout goes directly to the trustees for the named beneficiaries, rather than forming part of your estate. This means it generally bypasses the probate process and may avoid Inheritance Tax if your estate exceeds the nil-rate band (currently £325,000).
Generally yes, provided the trust is set up correctly and at least 7 years before death (for gift-related considerations). However, the trust structure must be appropriate for your circumstances. Seek legal and tax advice.
Most insurers offer the facility to write a policy in trust free of charge. However, you may want to pay for legal advice to ensure the trust is structured correctly for your specific situation.
It depends on the type of trust. Some trusts are irrevocable (cannot be undone); others may allow changes in certain circumstances. Once in trust, changing the arrangement can be complex — seek legal advice before setting one up.
Related calculators
Life insurance
Life Insurance Needs Calculator
Estimate how much life cover your family might need based on income, mortgage, and debts.
Life insurance
Mortgage Protection Calculator
Size up how much mortgage protection cover you might need and compare level vs decreasing term.
Life insurance
Income Protection Calculator
Work out a potential income shortfall if you were unable to work due to illness or injury.
Sources
- gov.uk — Inheritance Tax threshold (nil-rate band), residence nil-rate band, and rate (verified April 2026)
Disclaimer
This is a simplified estimate based on the assumptions shown above. It isn't a quote, and a real insurer may arrive at a different figure. Use it as a starting point, then check the details with your insurer or adviser.