Glossary · UK
What is Gift Inter Vivos Insurance?
A decreasing term life insurance policy designed to cover the potential Inheritance Tax on a gift if the giver dies within seven years.
Full Definition
Gift inter vivos insurance ('gift between the living') is a specialist decreasing term life insurance policy taken out to cover the Inheritance Tax risk created by making a large potentially exempt transfer (PET). If the person making the gift dies within 7 years, the gift can become chargeable to IHT, but taper relief reduces the effective tax rate on a sliding scale from year 3 onwards. Gift inter vivos policies are structured to decrease their payout in four equal steps, broadly matching the taper relief bands, so the payout roughly matches the tax that could fall due if death occurs in that year, and falls to nil once the gift is fully outside the estate after 7 years. It is a niche but useful planning tool for people making large lifetime gifts (for example, to help children buy a home) who want to avoid leaving the recipient with an unexpected tax bill if the giver dies unexpectedly early.