The Loan Trust is an alternative to giving away capital for good
Tax treatment varies according to individual circumstances and is subject to change
The Loan Trust is an alternative to giving away capital for good.
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.
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 capital is fully accessible by the investors (or settlors) and can be taken back at their discretion.
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.