The Government started a process of examination in January 2018 when the previous Chancellor asked the Office for Tax Simplification (OTS) to review Inheritance Tax (IHT). The subsequent consultation generated OTS reports in November 2018 and July 2019 and responses demonstrated the strength of public feeling on this topic.

One aspect that came through strongly in the OTS report is the complexity generated by the current seven-year gifting regime and the interactions with the nil rate band. There is a strong sense of injustice that comes through the responses – “the rich get away with not paying it” and it is perceived as a tax on hard working savers.

In an effort to offer potential solutions for reform, the All-Party Parliamentary Group (APPG) for Inheritance & Intergenerational Fairness was established, under the Chairmanship of John Stevenson MP. The APPG suggests replacing the current IHT regime (which combines a high flat-rate of 40% with an array of associated reliefs), with a flat-rate gift tax payable both on lifetime and death transfers. The APPG suggests:

  • A low, flat-rate of 10% tax in respect of lifetime gifts, subject to an annual lifetime allowance of £30,000.

  • On death, 10% tax on the worldwide estate and 20% for estates in excess of £2m;

  • Fewer reliefs which would lead to less avoidance and ensure the UK’s competitiveness in attracting wealthy people to live (and die) in the UK. The spouse and charity exemptions would be retained;

  • The tax-free capital gains tax (CGT) uplift on death would be abolished;

  • There would be a death allowance at a similar level to the current nil rate band to ensure that small estates not currently paying tax will remain unaffected by the changes;

  • Abolishing domicile as a connecting factor for IHT and instead looking at years of UK residence/whether assets are UK situs. The suggested connection is ten years’ out of the last 15 years residence.


In theory, the Government could make substantial legislative changes from Budget day (11 March 2020). Assuming there is to be reform of IHT, it is more likely the Government will consult on such a major shift in tax policy, with a view to changing the legislation from April 2021 or later. However, if a consultation goes ahead, it is also possible that some interim ‘reforms’ will be announced in Budget 2020 - perhaps labelled as ‘anti-forestalling’ measures to prevent tax avoidance.


Due to rising asset values and the decade-long freezing of the threshold at which IHT starts being paid, a growing number of estates are affected by the tax. The aggregate tax-take has more than doubled since 2009/10, and HMRC collected a record sum of £5.4 billion in IHT for 2018/19. The Government is likely to want this trend to continue post-Brexit, and any proposed reforms should not be at the expense of the Exchequer.


Those investors considering gifts may well want to re-visit options given the uncertain landscape. The current taxing regime has been in place since 1986, and is arguably due for an overhaul. In this context, Lombard International Assurance S.A, (LIA) has two well established gifting arrangements:

  1. Accumulation & Maintenance Plan – allows the donor to make a PET (Potentially Exempt Transfers) for IHT purposes via policy assignment, while restricting access to surrender proceeds for a pre-determined period. This helps meet the requirement of many donors who insist that beneficiaries be denied access to capital before reaching an acceptable age. The Plan has a number of unique features:

    a)    Policy conditions can be tailored to meet the donor’s requirements;
    b)    There is no limit on the amount that can be gifted:
    c)    If required, the Plan can allow the donee to access up to 5% annual tax-deferred withdrawals, subject to not exceeding 100% of the original investment. This facility may be used to help maintain beneficiaries, or support educational needs;
    d)    The policy assignment to an adult beneficiary (or trustees of a bare trust) is not a Chargeable Event for Income Tax purposes;
    e)    A series of plans may be used with different surrender dates, and/or different access to withdrawal amounts, to give further planning opportunities.

  2. Wealth Preservation Trust (WPT) – is structured as a specialist trust investing in a single-premium life policy. It offers immediate inheritance tax benefits depending on state of health (full medical examinations are not required). The settlor chooses an annual/fixed withdrawal of up to 5% per annum. These are paid up to 100% of the amount invested, or prior death. As the right to withdrawals cease on death, they have no capital value at probate. Benefits of WPT planning include:

    a)    Immediate reduction in IHT liability;
    b)    Depending on the type of trust used (bare and flexible versions are available) the settlor makes a discounted potentially exempt transfer or chargeable lifetime transfer;
    c)    If a bare trust is used, the initial investment is free of IHT after seven years;
    d)    Investment growth is free of IHT for the settlor;
    e)    Annual withdrawals up to 5% of the original investment amount can be taken without any immediate income tax consequences;
    f)    Discounted Gift Schemes such as WPT are recognised by HMRC for IHT planning.


There is no suggestion in either the OTS recommendations, or the APPG report that IHT be abolished, and any reform, if there is reform, is unlikely to be at the expense of the Exchequer. As tax liabilities on death are often very significant, LIA launched International Life Plan in 2018 (ILP) to ensure that funds are available on death to meet an IHT liability.

ILP is a pure protection product that offers clients the ability to protect key parts of their legacy and supports greater efficiency in estate planning. The product is designed as a whole of life or defined term product, which, on the death of the life assured, pays a fixed death benefit. Regular, level premiums are payable (as for classic life insurance) over the full term of the policy. Importantly, the premium is the full cost of the ILP: There are no extra charges or fees.

The International Life Plan may be especially valuable for clients in the following segments:

UK residents - The ILP is capable of covering significant IHT liabilities that UK domiciled clients may face on their worldwide estates.

UK resident non-domiciliaries - Because of our Luxembourg location, clients need not remit funds or assets to the UK to pay premiums.

International clients - International clients, including non-UK residents, face the prospect of UK tax exposure, particularly in respect of beneficial interests in UK situated residential property. If required, policies can be held in trust or corporate structures.

Stuart Robertson - Senior Wealth Planning Consultant
Stuart Robertson
Senior Wealth Planning Consultant
LIA Wealth Advisers