life insurance and inheritance tax

I've got a couple of small life insurance policies that I was required to take out when I took out mortgages. I'm pretty sure they're both decreasing term life assurance policies with about 12 and 16 years left to run.

The mortgages are now paid off although the policies still list the mortgages as beneficiaries.

Presumably these policies will form part of my estate if I die. But if I change them so that someone else is the beneficiary then will they fall outside of any inheritance tax on my estate?

I'm expecting (and hoping) that they will pay out nothing at all. I'm just trying to work out whether to leave them in place and give someone an unexpected windfall if I do die or to cancel them. At 40% tax IMO they're not worth it but if they can be tax free then I'll leave them in place for the time being.

I've tried googling but all the hits seem to be about using life insurance to pay IHT.

Tim.

You might run into a tax problem changing the beneficiary - essentially you would be making a gift to the new beneficiary of the benefit of the premiums you have paid for for the last few years, and HMRC might be interested in taxing that benefit if you die within 7 years. (I don't know if HMRC would actually make a tax charge here, hopefully a more knowledgeable person will come along shortly, but to me it makes sense that they would).

If you don't already know, find out how much life cover they provide now and how much they will provide in each of the remaining years. DTAs provide decreasing cover through their term but the premium usually stays constant, at least in absolute terms. You might feel that the policies give you value for money now but won't be in a couple of years when the cover has fallen further.

Mouse.