Life insurance in trust: what UK NRIs need to know

If your family depends on a life insurance payout, the words “written in trust” matter. They describe a legal arrangement in which trustees own the policy and receive its proceeds for the people named in the trust. The payout can then be dealt with separately from your estate, often without waiting for probate.

That is not the same as putting insurance “outside your pension”. Life cover and pension death benefits are separate arrangements, with different rules. A trust can help with a life policy, but it does not automatically remove every tax charge or make every trust fund exempt from Inheritance Tax (IHT).

Why UK residence history matters

Since 6 April 2025, the UK’s IHT test for overseas assets has generally been based on long-term UK residence, rather than domicile. Broadly, a person is long-term UK resident if they have been UK tax resident in at least 10 of the previous 20 tax years. The rules also keep some people within scope after they leave the UK.

For an NRI, the label “non-resident Indian” does not decide the UK outcome. Your UK residence history, the policy’s legal owner, where the policy rights are situated, and the trust’s terms all matter. If you have also lived in India or another country, local succession and tax rules may need checking alongside UK IHT. The NRI inheritance tax guide explains the UK’s broader cross-border estate rules.

What a trust may change

If the trust is validly set up and the trustees own the policy, the insurer normally pays the death benefit to the trustees rather than to your executors. They then distribute or hold the money under the trust deed. That can make funds available sooner and keep the death benefit from forming part of your free estate.

The trust itself is not necessarily free of IHT. Some trusts can face an entry charge when assets are put in, periodic charges every ten years, or exit charges when assets leave. The tax treatment depends on the type of trust and the value transferred. The policy may be worth little while it is a basic term policy, but do not assume that every existing policy has no value.

Premiums paid for other people’s benefit can also count as gifts. The exemption for normal expenditure out of income may apply when its conditions are met: payments must form part of a normal pattern, come from income, and leave enough income to maintain your usual standard of living. It is not automatic, so keep records of income, spending and premiums.

Arranging a new policy

If you are applying for new cover, ask the insurer or an FCA-authorised protection adviser about setting up the trust at the same time as the policy. Many insurers provide their own trust forms. The form should identify the trustees and beneficiaries and explain whether trustees have discretion over who receives the money.

Before signing, check who will control the policy, who can change beneficiaries, what happens if a trustee dies or you divorce, and whether the trust fits with your will. A discretionary trust offers trustees flexibility; a fixed-benefit arrangement gives beneficiaries defined rights. Those choices affect control and tax, so they should reflect your family circumstances rather than a generic template.

A trust for your life policy is also different from a pension beneficiary nomination. From 6 April 2027, most unused UK pension funds and pension death benefits are due to come into IHT scope under legislation already passed. Some benefits, including qualifying death-in-service benefits, are treated differently. Review pension nominations and policy trusts separately; moving or relabelling one does not deal with the other.

Reviewing a policy you already have

Do not sign a trust form for an existing policy until you know what is being transferred. Find the policy schedule and ask the insurer who legally owns it, whether it is assignable, whether it has a surrender or other value, and whether a trust or nomination is already recorded.

A transfer of an existing policy into trust can itself be a gift for IHT purposes. A transfer into a discretionary trust may be immediately chargeable if the value exceeds available reliefs and allowances, and the trust may have future charges. If you continue to benefit from what you have given away, gift-with-reservation rules can also matter. Premiums you pay after the transfer need their own review. These points are especially important for whole-of-life, investment-linked, joint-life or older policies.

Ask a solicitor or cross-border tax adviser to review the policy and trust deed before making an assignment. If an insurer’s form changes the policy owner or beneficiaries, check that it works with your will and any policy in another country. Our guides to UK life cover and wills for NRIs cover those connected decisions.

A practical review list

• Confirm whether the policy is owned by you, jointly, by a trust, or by someone else.
• Check the policy type, current value, assignment rules and payout conditions.
• Read the trust deed or insurer’s nomination record; a nomination is not always a trust.
• Identify the trustees and confirm they can act when a claim is made.
• Review your UK tax residence years and any move abroad against the long-term residence rules.
• Ask how initial transfer value, ongoing premiums, trust charges and any foreign-country tax would be treated.
• Keep policy, trust and premium records with your will and tell the trustees where they are.

“Written in trust” is a planning choice, not a magic phrase. It may help a family receive life cover promptly and keep the proceeds outside the policyholder’s estate, but the trust’s own tax position and the transfers used to fund it still need to be checked.