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Loan Trust

A loan trust is used to move future accumulation of capital outside of a taxable estate. It is a device for freezing or slowing down estate and IHT expansion.

Features

  • Limits growth in IHT liability
  • Retain full access to initial investment
  • Any growth is outside of your taxable estate
  • Keep control over money and eventual beneficiary(ies)
  • Money is invested according to risk
  • Loan repayments as lump sums or regular payments
Limitations

  • Doesn’t reduce current IHT liability
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The Loan Trust is an alternative to giving away capital for good…

It does this with a loan to trust. The loan is then invested and the growth is owned by the trust and outside of the estate. The full original loan is fully accessible by the investors (or settlors) and can be taken back at their discretion (depending on the terms of the loan agreement, the settlor may not be able to guarantee full repayment, as capital is invested and you may not receive back what you originally invested).

Traffic light comparison

AccessSpeedSimpleControlCost
Gifting
Whole of Life
Loan Trust
Discounted Gift Trust
Flexible Reversionary Trust
Business Property Relief
How each of the solutions fare in relation to these issues is indicated above using a traffic light system; green being the most favourable.

Please note: this graphic is subjective to change, not every expert will agree on the distribution of colours. There is much more to know before you act and that you should always seek financial advice first.

The original investment will form part of the estate, regardless…

Where use of the capital is likely to still be needed, an investor won’t be confident enough in their own financial stability that they can gift the money at this stage, so a Loan Trust is a decent blend of IHT control and access.

Loan Trusts for IHT Planning (in Practice)
In practice, the Loan Trust has its place in IHT Planning although is not one of the most powerful tools available.

Usually, it will become useful for marginal estates (estates that are close to or just over the available IHT thresholds).

It can be used for larger estates of course, where there is an intention to limit IHT, but access to the capital just can’t be foregone at this stage.

Following an IHT calculation and talk about required access and control a decision can be made on the best route, but due to the limited IHT savings that this plan type can offer, we would usually be looking to a different solution first.

IHT Planning is best dealt with holistically, taking into account all of your finances and goals

We have many years of experience in advising clients across the country who wish to protect their estate, and we provide a tailored service for each individual. Our company is well qualified to answer questions and enable you to organise your assets.

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