The role of protection in navigating IHT reform

This article first appeared in The Intermediary in August 2025.

Protection has gained significant attention following the proposed inheritance tax (IHT) regulation changes in last year’s budget. Clients and their families are placing greater emphasis on safeguarding their financial legacy and, as a result, IHT planning has seen a shift from a specialist area to a core element of protection advice.

Frozen thresholds, tightening reliefs and a more assertive HMRC mean more estates than ever risk an IHT bill. At the same time, clients’ ability to absorb a sudden tax hit is questionable. Royal London’s Financial Resilience Report found that 28% of mid-lifers (aged 30–49) could cope financially for just one month if they were unable to work due to illness, and 37% have less than £1,000 in savings. This fragility exists even among higher earners, those most likely to face an IHT bill.

The net gets wider

From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be subject to a new cap, allowing only the first £1 million of combined qualifying agricultural and business property to benefit from 100% inheritance tax relief.

Any value above this threshold will receive only 50% relief, resulting in an effective inheritance tax rate of 20% on the excess, as half of the standard 40% rate will apply. While this change is expected to affect up to 70,000 farms, its implications extend well beyond the countryside. With nil rate bands frozen and property values continuing to rise, many families may now find themselves breaching IHT thresholds and facing unexpected tax liabilities.

While tax planning is an essential part of the conversation, it’s only one side of the coin. The other is ensuring that when liabilities arise, there’s actually cash available to meet them, and that’s where liquidity planning becomes key.

Could protection be the liquidity generator?

Against this backdrop, protection products are invaluable, not only to cover known liabilities but to provide flexibility if valuations change or reliefs are reduced.

• Whole-of-life can provide a sum assured to meet fixed or anticipated IHT bill
• Joint life second death can be particularly useful for customers with substantial assets but who may not have ready access to cash and need to cover a potential IHT bill
• Gift inter vivos can help cover the tapering liability if a donor dies within seven years of making a gift
• Trusts ensure customers loved ones can access funds quickly, without delays from probate or IHT

With pensions set to be being included within IHT calculations, it’s likely that the protection landscape will look very different in 12 months’ time. Royal London’s interim results for H1 2025 already highlight a change in adviser behaviour. Protection new business is up 14% to £455 million, with strong demand for whole-of-life and joint life second death products. Advisers may soon find the IHT conversation unavoidable. After all, without it, families may face forced sales of property, land, or business assets.

Professional connections

Complex IHT cases are rarely solved by one professional working in isolation. Advisers who cultivate strong connections can deliver far greater value.

• Solicitors can support planning business ownership structures, partnership agreements, and property titles to maximise relief eligibility
• Will writers help ensure the estate is properly structured whilst maximising family financial planning opportunities
• Tax specialists/accountants are key in ensuring accurate valuations and to secure available reliefs

Formal referral arrangements or joint-client meetings can transform the quality of outcomes. And under Consumer Duty, holistic collaboration is a genuine route to better results.

Financial fragility 

The Royal London resilience data underlines a growing paradox that many households are asset-rich but cash-poor. Higher earners are more likely to hold protection products (42% of mid-lifers have some form of cover), but they also face liquidity challenges if hit with a sudden IHT bill on an asset they don’t wish to or can’t sell.

This makes the case for whole-of-life and second-death policies even stronger by converting a regular premium into a payout when it’s needed most. And when set up in trust, they bypass probate delays and IHT.

Supporting client outcomes

Discussing IHT in protection advice isn’t about fear, it’s about showing how changing rules, lost reliefs, and shifting liabilities can impact families. The earlier the conversation, the more options remain.

Protection reviews are a good entry point. Clients may find existing cover has been based on outdated valuations, and their estates may now far exceed certain thresholds. A gifted deposit, a business transfer, or even a surge in local property prices can all tip a family into the IHT net.

Let’s think differently about protection advice

The tightening IHT environment and HMRC’s growing scrutiny are reshaping how advisers should approach protection. Whole-of-life, joint life second death, gift inter vivos, and trusts are no longer niche tools, they are central to preserving family wealth.

The advisers who will stand out over the next few years will be those who combine technical product expertise with strong professional networks, ensuring that every protection recommendation is part of a coordinated, future-proof estate plan.