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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: administration and payment, including the instalment option

Mrs Patel, aged 62, wants her children to have cash available to pay the inheritance tax on her estate soon after her death, without increasing the value of that estate. Which arrangement best achieves this?

A life policy on her own life written in trust is best. The proceeds go straight to the beneficiaries or trustees, stay outside her estate so they are not taxed, and are available quickly without waiting for probate to be granted.

  1. ATake out a life assurance policy on her own life and keep it in her own name
  2. BTake out a life assurance policy on her own life and write it in trust for her childrenCorrect
  3. CMake a large gift to her children now and rely on the instalment option on her death
  4. DLeave all of her assets to her spouse and rely on the nil rate band

Explanation

A policy written in trust pays the proceeds directly to the trustees or beneficiaries, so the money is outside her estate and is available without waiting for probate. A policy held in her own name forms part of the estate, so it increases the IHT and is not available until probate is granted.

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