Comparison · Inheritance Tax & Protection · 2026/27
Gift Inter Vivos Insurance vs Whole of Life Cover UK 2026/27
Gift inter vivos insurance is a cheap, decreasing 7-year policy built specifically to cover the taper-relief risk on a single lifetime gift, while whole of life cover is a level, lifelong policy that funds the eventual inheritance tax bill on your whole estate. They solve different problems and are often used together. This 2026/27 guide compares taper relief bands, typical cost and a worked GBP 200,000 gift example.
Key facts -- 2026/27
- • IHT nil-rate band: GBP 325,000 (frozen to April 2030)
- • Residence nil-rate band: GBP 175,000
- • Main IHT rate: 40% (36% if 10%+ of estate left to charity)
- • PET taper relief: 40% (0-3 yrs) → 32% → 24% → 16% → 8% (6-7 yrs) → 0% (7+ yrs)
- • Gift inter vivos term: maximum 7 years, decreasing sum assured
- • Whole of life term: lifelong, level sum assured
Two Different Risks, Two Different Policies
A lifetime gift becomes a Potentially Exempt Transfer (PET) -- it is only free of inheritance tax if the giver survives 7 years. Die within that window and IHT becomes payable on the gift, at a rate that reduces (tapers) the longer the giver survived. Gift inter vivos insurance is built precisely to cover this shrinking, time-limited risk.
The IHT liability on your wider estate, by contrast, does not expire after 7 years -- it exists for as long as you hold assets above your nil-rate bands. Whole of life insurance, with no fixed term, is the tool built for that permanent liability.
Worked Example: GBP 200,000 Gift, Nil-Rate Band Already Used
A parent gifts GBP 200,000 to a child, having already used their nil-rate band on other transfers, so the full gift is potentially taxable if death occurs within 7 years.
| Years survived | Taper rate | IHT due on GBP 200,000 gift |
|---|---|---|
| 0-3 years | 40% | GBP 80,000 |
| 3-4 years | 32% | GBP 64,000 |
| 4-5 years | 24% | GBP 48,000 |
| 5-6 years | 16% | GBP 32,000 |
| 6-7 years | 8% | GBP 16,000 |
| 7+ years | 0% | GBP 0 |
A gift inter vivos policy would set decreasing cover matching this schedule (GBP 80,000 → GBP 0 across the 7 years), while a whole of life policy sized separately for the wider estate would run indefinitely at a level sum assured.
Side-by-Side Comparison
| Factor | Gift inter vivos | Whole of life |
|---|---|---|
| Term | Maximum 7 years | Lifelong |
| Sum assured | Decreasing, matches taper relief | Level, fixed |
| Typical premium | Low -- fixed short term | Higher -- payout guaranteed eventually |
| Best suited to | A single lifetime gift | Ongoing whole-estate IHT liability |
| Written in trust | Recommended | Recommended |