Labour’s death tax raid triggers scramble to buy life insurance

Labour’s death tax raid triggers scramble to buy life insurance

Wed, August 5, 2026 at 6:23 PM GMT+3 2 min read

A rush to beat Labour's death tax has triggered a boom in life insurance sales.

Unused pension savings and death benefits will be subject to inheritance tax from April next year.

The changes, announced by Rachel Reeves, the former chancellor, in her 2024 Budget, have already triggered a rush of people looking for ways to cover the steep tax bills their pensions could now leave behind.

Barry O'Dwyer, the chief executive of Royal London, Britain's biggest life and pensions mutual, said more customers were looking to take out life insurance specifically to offset the liability.

"It doesn't take that much, if you're a small-business owner and you have a pension pot built up, to be tipped over the thresholds," Mr O'Dwyer said.

"For a lot of those sorts of families, the worst-case scenario is having to sell the business to pay the inheritance tax bill. So what a lot of these people are doing is turning to advisers to see what they can do – and a lot of advisers will recommend taking out life insurance to effectively pay your tax bill."

The rush helped Royal London report net inflows of £1.8bn in the first half of the year, reaching record assets under management of £43.6bn.

John Healey, Andy Burnham's new Chancellor, will launch his first Budget on Oct 28. Mr O'Dwyer called on the Government to deliver some measure of certainty around any changes in policy.

"What we would love is some certainty in the run up to the Budget so that people don't make decisions that they subsequently regret," Mr O'Dwyer said.

In the months before Labour's second Budget in November 2025, rumours of changes to the rules around the pension tax-free lump led taxpayers to withdraw billions in fear their retirement pots could be targeted.

Last week, Royal London, along with Standard Life, Hargreaves Lansdown and AJ Bell, called on the Chancellor to rule out any changes to tax-free cash rules to end a "damaging cycle of uncertainty" for pension savers.

The mutual's money market fund, among the biggest in the UK, has been growing rapidly, Mr O'Dwyer said, as investors have retreat from markets as fears of a bubble in AI build.

"There's a little bit of nervousness about overheated markets and so some customers want to keep some money in short-term deposits," he said.

"So there's a little bit of customer nervousness, but also I think a little bit of savvy behaviour by customers trying to figure out how can they generate the best return on their money."

Try full access to The Telegraph free today. Unlock their award-winning website and essential news app, plus useful tools and expert guides for your money, health and holidays.