
How UK-Domiciled Individuals Can Use Offshore Life Insurance Trusts Tax Efficiently from April 2025
📌 Overview
From 6 April 2025, the UK is introducing major reforms to its inheritance tax (IHT) rules. These changes will significantly affect how life insurance policies — particularly Indexed Universal Life Insurance (IUL) — are treated when placed into discretionary trusts.
If you’re considering using an IUL policy for estate planning, understanding how these changes impact the IHT treatment of non-UK assets in trust is essential.
✅ What Is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) is a flexible, cash value–based life insurance product. It allows high-net-worth individuals to:
• Protect wealth,
• Access tax-deferred growth,
• Leave a legacy via a tax-efficient death benefit.
In the UK, many use offshore IUL policies (e.g., from Bermuda insurers) as part of a wealth and inheritance tax planning strategy.
🔍 Planning Strategy: Putting an IUL Policy into a Discretionary Trust
Placing an IUL policy into a discretionary trust:
• Removes the death benefit from your estate for IHT purposes,
• Provides control over how and when beneficiaries receive the funds,
• Offers long-term tax advantages — especially for UK-domiciled individuals living abroad.
⚖️ IHT Treatment Before and After April 2025
🔸 Current Rules (Before 6 April 2025)
Under current UK IHT legislation:
• If you’re UK-domiciled, transferring an IUL policy premium (or policy ownership) into a discretionary trust is a Chargeable Lifetime Transfer (CLT).
• If the premium exceeds the nil-rate band (£325,000), a 20% IHT charge applies on the excess.
• Once settled, the trust may also face 10-year periodic charges and exit charges.
💰 Example – CLT on IUL Premium (Pre-April 2025)

A UK-domiciled client setting up a discretionary trust to hold a US$10 million IUL policy with a $3.5 million premium could face a $618,000 immediate IHT bill.
🔸 New Rules (From 6 April 2025)
Under the IHT reforms coming into effect in April 2025, the focus shifts from domicile to residency.
Key Definition: Long-Term Resident (LTR)
• An individual is an LTR if they have been UK tax resident for 10 out of the last 20 tax years.
• If you are not an LTR, even if you’re UK-domiciled, your non-UK assets in trust (like a Bermuda IUL policy) are treated as excluded property — and not subject to UK IHT.
🧾 Revised Example – UK IUL Policy in Trust (Post-April 2025)

📎 Practical Case Study
• Client: UK-domiciled, living in Dubai, the United Arab Emirates since 2012 (13 years non-UK resident by April 2025).
• Asset: $3.5 million premium into an offshore cash value Indexed Universal Life Insurance policy.
• Action: Settles the policy into a discretionary trust in August 2025.
• Result:
• Not an LTR ⇒ No CLT applies.
• The IUL policy is excluded property.
• ✅ No IHT charge on settlement.
• ✅ No 10-year or exit charges on trust.
⚠️ If the individual returns to the UK and becomes a Long Term Resident in the future, the trust may become taxable again — so ongoing monitoring and tax advice is key.
🧠 What Financial Advisers Should Do Now
Financial advisers working with UK-domiciled, globally mobile clients should:
• Review each client’s UK tax residence history to determine LTR status.
• Evaluate deferring trust settlements until after 6 April 2025, where appropriate.
• Ensure IUL policies are structured through non-UK situs trusts for optimal tax efficiency.
📚 Authority & Sources
The insights in this Capital for Life article are based on recent expert commentary and policy updates from leading tax and legal advisory firms in the UK. Below are the sources that support the key statements made regarding the treatment of trusts, IUL policies, and inheritance tax from 6 April 2025:
1. KPMG UK
“For relevant property trusts, whether or not non-UK assets are excluded property will no longer be fixed at the time the trust is established. Instead, the excluded property status of those assets will depend on the long-term residence status of the settlor.”
2. Deloitte UK
“The concept of a ‘Long Term Resident’ will be introduced… Non-LTRs will only be within scope for UK-sited assets.”
3. Alvarez & Marsal
“Where a trust is settled by a non-LTR with non-UK assets, the trust will be an ‘excluded property trust’ and the assets in the trust will not be subject to UK IHT; however, this treatment will not be fixed and will cease when the settlor becomes an LTR.”
4. Tax Adviser Magazine (CIOT)
“The excluded property status of non-UK assets settled into trust will depend on whether the settlor is treated as long-term resident at a time when a chargeable inheritance tax event occurs.”
5. Brodies LLP
“This represents a fundamental transformation in wealth planning for UK-resident non-domiciled individuals… with trusts now taxed according to residence rather than domicile.”
6. Cooper Parry
“Individuals who do not satisfy the LTR test will not be subject to IHT on excluded property.”
7. Wedlake Bell
“From 6 April 2025, non UK-situs assets will be subject to IHT if an individual is an LTR for the tax year of the chargeable event…”
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