Post-Budget protection opportunities

This presents a great opportunity to not only discuss the impact of those changes, but also protection-based solutions, as follows:

• Income tax and NIC thresholds to remain frozen to April 2031 – the amount of tax relief received by a company taking out a Relevant Life policy on an employee will continue to make these one-person death-in-service arrangements attractive. And as a RLP isn’t a pension arrangement, it doesn’t fall under pension rules and so are not impacted by the IHT on pension changes.
• Extension of frozen Nil Rate Bands until April 2031 – combined with rising estate values, the number of estates paying IHT will continue to increase, according to the Office for Budget Responsibility, nearly one in 10 (9.5%) estates by 2029/30 will pay IHT, so this reinforces the continued need to do IHT planning with protection.
• Alignment of new IHT rules for Agricultural Property Relief & Business Relief allowance from April 2026 – when introduced next year, a change has been made to allow any unused portion of the new £1m allowance to transferable between spouses or civil partners. Although this effectively doubles the allowance to £2m on second death, because of the changes announced last year many clients will still have higher IHT liabilities, which could be covered using a whole-of-life protection policy in trust.
• IHT on unused pension funds and relevant death benefits from April 2027 – because of the changes announced last year many estates will either be dragged into IHT or pay more IHT. In this year’s Budget, a change has been introduced to allow personal representatives (PR) to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay IHT due in certain circumstances, and PR will also be discharged from a liability for payment of IHT on pensions discovered after they have received clearance from HMRC. Whilst this will help ease the burden and liability on PR to pay the IHT on pension funds, many estates will still have an increased IHT liability, which can be covered using a whole-of-life protection policy in trust.
• There was no change to the IHT gifting rules – so where a gifting strategy is used, the IHT liability can be protected using a joint life second death term policy to age 90 and using the Gift InterVivos benefit, a series of five level term policies can be taken out without any further medical evidence to cover the reducing IHT liability during the survival period.
• There was no change to IHT exemptions – meaning that protection premiums can continue to be paid within the annual exemption or normal expenditure out of income, meaning premiums do not reduce the frozen Nil Rate Band. This may be an option used by those with large pension funds, who do not need the income and are worried about IHT on pensions, so could drawdown on the pension and use normal expenditure out of income (pension withdrawals must be used within two years to qualify) to cover lifetime gifts, or to fund a whole-of-life protection policy in trust.
• Increase in rate of tax applicable to trustees of discretionary trusts, for property rental income and savings interest, from 45% to 47% from April 2027 – this could make investment-based solutions in trust less attractive, and therefore using a protection-based solution in trust could be an alternative.

As protection is said to be the foundation of sound financial advice, this is also a good time to revisit customers basic protection needs, of life cover, income protection, critical illness for themselves or their children, pregnancy & early childhood cover for those expecting, plus a range of optional value-added benefits such as multi-fracture cover or our Accelerate benefit, which provides a package of six medical services for cancer, heart and neurological conditions.

Our protection proposition can help support your advice and your customers and their families, so please speak to your Protection Consultant to find out more or contact us.