Use of Loan Trusts for inheritance tax planning
Use of Loan Trusts for inheritance tax planning
Loan Trusts are trusts set up to receive a loan from someone looking to provide some form of inheritance to a family member or group of family members.
The person looking to provide the inheritance makes the loan to the trust and the trust invests the proceeds of the loan. Any investment growth or income generated in the trust belongs to the trust.
Any investment growth or income generated in the trust is free from inheritance tax.
The person making the loan can demand repayment of the loan at any time. Depending on the structure of the trust there may be tax consequences to demanding the repayment of the loan.
Good financial planning would include a plan to repay 5% of the value of the loan every year as this means the loan repayments are free of tax. Alternatively, the loan can be repaid in full after 20 years with no tax implications.
Most loan trusts are set up using standardised documents provided by life insurance companies and there is normally a life insurance benefit included.
Studio 61 Wealth Management Ltd provides advice to clients with existing loan trust arrangements and client looking to set up new arrangements.
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