Where the terms of a life policy are that it matures on the death of the person who took it out, are the after-death proceeds subject to inheritance tax (IHT)? 

Arthur Weller replies  

Where the terms of a life policy are that it matures on the death of the person who took it out, and that person remains the beneficial owner until their death, the policy proceeds are included in their estate for inheritance tax. 

However, if an individual has taken out a policy on their own life in trust for (say) their children, the policy is treated as belonging to the children, and when the proceeds are received by the trustees there is no IHT charge because the children have held an interest in the trust fund throughout, which now comprises cash instead of a life policy. Nor is there any IHT when the trustees pay the cash to the children because the trust fund, embracing whatever was within it for the time being, was always regarded as belonging to them (the interest in possession)