Loan Trusts for Inheritance Tax Planning

Loan trusts for inheritance tax planning

Using a Loan Trust for Inheritance Tax planning

Taking your first steps with Inheritance Tax planning can be a daunting and confusing process.

Typical reasons we hear for not starting any planning are:

  1. Simply overwhelmed by the different options that can be taken.
  2. Not confident that you can afford to make significant outright gifts.
  3. Concerned that divorce or bankruptcy could result in any gifted funds ending up in the “wrong” hands.
  4. Worried that any gifts may change the expectations of your children.
  5. Disinclined to set up a Trust or any other arrangement that sees you “locked out” and unable to access your capital in the future.
  6. Reluctant to commit to a regular life assurance premium which could be payable for decades.
  7. Would prefer to defer any planning and simply not think about death.

Using a simple Loan Trust can overcome most of these objections. Loan Trusts have become increasingly popular for those wishing to take their first steps with IHT planning.

What is a Loan Trust?

A Loan Trust requires you to establish a trust. The trust is set up with a loan of cash to trustees. The trustees then invest the lent amount in an investment bond (usually) on behalf of the trust beneficiaries.

The loan itself is not a gift for IHT purposes as it remains an asset of yours and within your estate and you can call upon it at any time.

What are the benefits of a Loan Trust?

A Loan Trust allows you (the settlor) access to your original capital whilst achieving an inheritance tax (IHT) advantage by ensuring that any growth in the Trust accrues outside of your taxable estate, thereby ‘freezing’ the liability on the amount lent.

What happens if you wish to access your loan?

Inheritance Tax savings can be maximised over time by the trustees making loan repayments, funded by the tax deferred withdrawals from the investment bond, back to you on a regular basis (if required).

Provided such loan repayments are not accumulated elsewhere in your estate, the taxable asset (the loan) will gradually reduce in value, as will the resulting IHT liability on the estate.

Want to know more about how a Loan Trust can work for you?

Second Opinion Service

We often seek out more than one perspective for matters of health. The same common-sense advice can apply to financial health as well. That’s why we offer our second opinion service.

If you, your family or close friends could benefit from a fresh perspective, please let us know in the form below. Any information you share with us will be treated with the careful handling it deserves.

At a second opinion meeting, we’ll assess where you are now, where you want to go, and the best ways we see to close that gap. If you could potentially benefit from working with us, we’ll say so. If we find you are already on the right financial path, we’ll tell you that as well.

To ask a question or arrange a second opinion meeting, please complete the form below or call 01825 76 33 66.

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
Please note that the Financial Conduct Authority (FCA) does not regulate some aspects of estate or tax planning or trust advice.