Insurance Curator LONDON — Financial advisory firms across the United Kingdom are reporting a sharp increase in inquiries for whole-of-life insurance policies as families react to the government’s decision to bring pensions into the inheritance tax net starting in April 2027.
The surge follows Chancellor Rachel Reeves’ Autumn Budget announcement, which ended the exemption for unused pension funds and death benefits from Inheritance Tax (IHT). The policy shift, often described by critics as a "pension tax raid," is expected to affect approximately 8% of estates annually, according to Treasury estimates, prompting a rush toward insurance products designed to cover future tax liabilities.
Whole-of-life insurance policies, which are guaranteed to pay out upon the death of the policyholder, are increasingly being used as a strategic tool to provide heirs with a tax-free lump sum. This payout is typically used to settle IHT bills, preventing the forced sale of family homes or the liquidation of pension assets.
"We have seen a notable uptick in clients asking how to ring-fence their legacy following the Budget," said Nicholas Hyett, an investment manager at Wealth Club. "For those with significant pension pots that were previously shielded, the prospect of a 40% tax hit is a major catalyst for looking at life insurance as a hedge."
Under the new rules, the government expects to raise approximately £1.46 billion per year by 2029-30. Currently, most pensions can be passed on tax-free if the holder dies before age 75, or at the recipient's marginal income tax rate if they die after 75. By 2027, these assets will be aggregated with the rest of the estate, often pushing the total value well beyond the current £325,000 nil-rate band.
Financial analysts at Quilter noted that the demand is particularly high among retirees who had planned to use their pensions as a primary vehicle for intergenerational wealth transfer.
"The landscape for estate planning has shifted overnight," said Ian Dyall, head of estate planning at Quilter. "Whole-of-life cover, especially when placed in a trust, remains one of the few remaining ways to ensure that a tax bill doesn't erode a family's financial security. The inquiries we are seeing are a direct result of the reduced utility of pensions as a tax-efficient legacy tool."
Insurance brokers have noted that the cost of these policies is also a factor in the current surge. Because premiums for whole-of-life cover increase with age, many individuals in their 50s and 60s are seeking to lock in rates before the 2027 deadline.
Data from the Office for Budget Responsibility (OBR) suggests that the change will result in around 49,000 additional estates being taxed or paying more tax annually. This includes 10,500 estates that would not have been liable for IHT at all under previous rules.
While the government maintains that the measure makes the tax system "fairer" by closing a loophole used by the wealthy, industry bodies have warned of the complexity of the transition. The Society of Pension Professionals recently stated that the administrative burden on pension providers to coordinate with HMRC and executors could lead to significant delays in probate.
For now, the insurance market is adjusting to the heightened demand. "The certainty of a whole-of-life payout is the primary draw," added Hyett. "In an environment of fiscal tightening, families are prioritizing liquidity for their successors."