standard Gift Inter Vivos Insurance Policy Guide

My Guide to Gift Inter Vivos Insurance

It is a life assurance policy that provides a cash lump sum to cover a potential Inheritance Tax liability if the donor of a gift dies within seven years of making the gift. Premiums are fixed at the outset and will not change during the term of the policy. The term of the policy is 7 years. The cash lump sum that we would pay out on death goes down over the term of the plan. Over the years I have helped several clients take advantage of this important life insurance policy that can help with inheritance tax.

When a gift is made between two people it would be considered part of the donor’s estate if they died within seven years of the gift being made. This would make the amount gifted liable for IHT. The Gift Inter Vivos is a seven year decreasing term assurance policy for which you pay a single premium at the outset.


Gift Inter Vivos Policies How They Work

The sum assured decreases to mirror the Government’s IHT regulations and offsets the IHT liability on any gifts you have made, paying out a guaranteed, tax-free lump sum if you die during the policy term. The policy cannot be written on a joint life basis the policy must be on a single life. It is very important that the correct trust is used to prevent further IHT liabilities. The IHT bands that the policy is structured to pay out at are as follows:

Policy Year % of Initial Cover
Year 1 100%
Year 2 100%
Year 3 100%
Year 4 80%
Year 5 60%
Year 6 40%
Year 7 20%

Gift Inter Vivos Policy Summary

The cash lump sum paid under Gift Inter Vivos Assurance is normally free of income tax and capital gains tax.

Unless it is written under trust, on death the proceeds of an ‘own-life’ policy will form part of your estate. If the policy is written under trust then the proceeds on death will not normally form part of your estate for Inheritance Tax purposes. Further information about writing policies under trust can be obtained from your Financial Adviser.

An ‘own-life’ Gift Inter Vivos policy should normally be written under trust. Please speak to your Financial Adviser about the tax implications this may have.

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