Should Rysaffe planning be used for protection life assurance policies?

What is Rysaffe planning?

Rysaffe planning is a process where assets to be placed in trust are split into a series of separate trusts established on different days, rather than placing them into a single, large trust. Provided each trust is truly an independent trust established on a separate day, it will be entitled to its own nil rate band at each ten-year anniversary thus reducing any periodic charge payable. 

Implementing the Rysaffe strategy

To undertake Rysaffe planning, the assets to be placed in trust must be capable of being fragmented amongst the series of trusts. This will be the case where the asset is, for example, shares in a company or a life assurance policy. If a life policy is not segmented, multiple policies can be effected so that each policy can be placed into a separate trust. 

At the 10-year anniversary, each trust will be entitled to a nil rate band of, currently, £325,000 less the value of any chargeable transfers made in the 7 years before the trust was established. This may well include any transfers (including life policy premiums) to earlier trusts that have been created. The trustees’ nil rate band will also be reduced by any payments out of the trust in the previous 10 years – in the case of a trust holding a protection life assurance policy, this is likely to be zero. 

What types of policy is Rysaffe planning appropriate for? 

As Rysaffe operates to reduce the periodic charge at a 10-year anniversary, the policy concerned would need to be capable of having a value at that point in time. Here, the position differs between term assurance policies and whole of life policies. 

Term assurance policies 

The trust of a term assurance policy will only have a value at a 10-year anniversary if it then has a market value. As a term assurance does not have a surrender value, the only ways it can have a market value are: 

• If the life assured is in serious ill health. In this respect, HMRC will look to see if the life assured was in serious ill health soon after the 10-year anniversary if he or she dies within 2 years of the anniversary; or
• If the life assured dies just before the 10-year anniversary leaving the trustees insufficient time to distribute the proceeds before the anniversary.

If the sum assured is high enough, Rysaffe planning may be worth pursuing to save inheritance tax. 

Example – Avril’s term policy

Avril takes out a term assurance policy for £2.7 million, paying an annual premium of £6,000 and places it into a discretionary trust. If Avril is alive and well after 10 years, there will be no inheritance tax at that time. However, if Avril is then in serious ill health and dies, say, 4 months after the 10-year anniversary, the policy will probably have a market value attributed to it close to the £2.7 million death benefit. The periodic charge would be £142,500 - namely £2,375,000 (£2.7 million less £325,000) at 6%. 

If Avril had instead used Rysaffe planning to split this cover across nine policies, each in a separate trust set up on a different day with each policy having a death benefit of £300,000, there would be no periodic charge to pay on each trust at the 10-year anniversary, even though Avril was then in serious ill health. 

This represents a tax saving of £142,500. Of course, this saving would only arise should Avril be in serious ill health at the 10-year anniversary and die within the following 2 years. 

Whole of life policies 

The test for whether a whole of life policy has a value for inheritance tax purposes at a 10-year anniversary is the market value of the policy (frequently, the surrender value), or the premiums paid, whichever is greater. Should the life assured be in serious ill health at a 10-year anniversary, and the policy has a substantial sum assured, the market value of the policy may be significantly higher than the surrender value. 

This means that there will always be a value for a whole of life policy at the 10-year anniversary, irrespective of the life assured’s health at that time. Of course, a periodic charge will only arise if the deemed value is more than the trustees’ nil rate band. 

Example – Lawrie's whole of life policy 

Lawrie establishes a whole of life policy with a death benefit of £10 million. He pays premiums of £60,000 p.a. which are fully covered by his normal expenditure from income exemption. Assuming Lawrie is in good health at the trust’s 10-year anniversary, and the policy’s surrender value is less than £600,000, the periodic charge will be based on £600,000 (10 x £60,000 p.a.) and a periodic charge of £16,500 would arise (6% of £275,000). 

Had Lawrie set up four trusts (established on different days), each holding a policy with a death benefit of £2.5 million, each would have a value of £150,000 (10 x £15,000 p.a.) at the 10-year anniversary which falls comfortably within each trust’s nil rate band. 

Using Rysaffe planning in this way saves inheritance tax of £16,500. It also means that the trustees are not faced with finding cash to pay periodic charges at a 10-year anniversary. 

Where the whole of life policy premiums are scheduled to increase in the future, say, linked to RPI, this will need to be taken into account when determining how many trusts should be established to avoid inheritance tax at the first, and perhaps subsequent, 10-year anniversaries. 

Where a settlor pays regular premiums on the same day to life assurance policies held in different trusts, HMRC does not treat these premium payments as same day additions to each trust.

Other implications 

There are other factors to take into account with Rysaffe planning: 

• As well as being set up on a different day, each trust should, if possible, have slightly different terms, say, different default beneficiaries;
• It is preferable that each premium payment is covered by the normal expenditure from income exemption. This will avoid premium payments eating into the settlor’s nil rate band and, on larger premiums, perhaps giving rise to lifetime inheritance tax charges. It will also avoid any reduction in the trustees’ nil rate band on the basis that the settlor will have made chargeable transfers in the 7 years before a particular trust is created and avoid possible problems arising out of the application of the added property provisions; and
• By restricting 10-year charges on the trusts to zero, later exit charges will also be reduced.

Efficient trust planning can save your beneficiaries hundreds of thousands of pounds in unnecessary tax charges, though professional advice should, of course, be sought on the tax implications by those contemplating Rysaffe planning. 

The Financial Conduct Authority does not regulate tax planning, estate planning or trusts.

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The information in this article is correct as at 18/03/2026.