As a professional sportsperson in the UK, relatively high earnings during your playing career may translate into significant wealth later in your life.
At this stage, Inheritance Tax (IHT) may not feature highly as one of your top financial priorities.
However, given that it could easily result in your beneficiaries having to pay a 40% tax charge on some of the value of your assets when you pass on, it is worth taking seriously.
One simple and effective strategy to mitigate this is to set up a life insurance policy and place it in a trust.
Read about how doing this can help your beneficiaries avoid facing a big tax charge, and provide valuable peace of mind for you and your family.
How you could be affected by Inheritance Tax
On your death, IHT will be charged at 40% of the value of your estate exceeding the available nil-rate bands.
As at the 2026/27 tax year, the nil-rate band is £325,000, with up to an additional £175,000 residence nil-rate band if you pass your home to your children or grandchildren.
Those figures are frozen until at least April 2031.
As a professional rugby player, your potential peak earnings may occur in your 20s or early 30s.
As well as your earnings from playing, you may benefit from endorsements and other income from sources outside the game, such as a property portfolio or business interests.
Because of that, the value of your estate could quickly exceed the nil-rate bands and your beneficiaries may well face an unwelcome tax demand.
As a result, it is important to consider estate planning early and take measures to reduce the amount of IHT your beneficiaries may ultimately be liable for.
Life insurance can provide peace of mind for your beneficiaries
A life insurance policy is commonly used to provide a lump sum of money to your loved ones after your death.
It gives them the comfort of knowing that if anything happened to you, they would enjoy an element of financial security, even if you are no longer there to provide for them.
From an IHT perspective, some or all the proceeds from a life insurance payout can be earmarked to cover the IHT liability itself. This ensures your beneficiaries do not have to sell assets, such as property or investments, to pay the bill.
However, if the policy is held in your name, the payout becomes part of your estate and could compound the very problem it was designed to solve by increasing the amount of IHT that is chargeable.
To prevent this, the policy needs to be put in a trust. Doing so transfers legal ownership of the policy to a trust structure. It is then managed by your nominated trustee (or multiple trustees) for the benefit of your chosen beneficiaries.
From that point on, the policy is no longer considered part of your estate for IHT purposes.
3 important benefits of placing a life insurance policy in trust
Setting up a life insurance plan in trust provides you with three valuable benefits.
1. The proceeds of the policy remain outside your estate
As you have read, because the policy is no longer owned by you, the payout does not form part of your taxable estate. This means your beneficiaries receive the full benefit without it being reduced by IHT.
2. It should help ensure a prompt payment to your beneficiaries
Before your family can administer your estate and receive a life insurance payout, they need to apply for probate to be granted. As this is a legal process, it can often take time, particularly if there are complications around your assets.
Additionally, any outstanding IHT must be paid before probate is granted.
However, when a policy is held in trust, the life insurance payout can typically be made by the policy provider quickly after death, without waiting for probate.
This will be beneficial for your loved ones who may need immediate access to funds to cover living expenses, debts, or other tax liabilities.
Crucially, your beneficiaries can use the proceeds from your life insurance policy to cover an IHT bill instead of having to find the funds themselves.
3. You control who benefits from the policy
Putting your life insurance policy in trust enables you to set out specific instructions to your nominated trustees regarding who receives the proceeds and under what circumstances.
This is particularly valuable if you have complex family situations, dependants, or financial management concerns.
Life insurance in trust creates a financial safety net for your loved ones
You will no doubt be aware that professional rugby careers are often unpredictable, as injury or contract changes can easily affect your earnings.
At the same time, you may well lock in a high level of expenditure that is commensurate with your earnings.
Using a life insurance trust is a relatively cheap option to create a financial safety net for your loved ones. Importantly, this operates independently of your estate.
This means that regardless of what happens in the future, your family is always protected, and your potential IHT exposure is managed.
Get in touch
When using trusts, we would always recommend that you get expert advice to ensure the trust is structured correctly.
If you would like to talk to us about your own arrangements, please get in touch.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning, estate planning, and trusts.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.