Loan Trust & Inheritance Tax Planning
A Loan Trust suits clients who want to engage in inheritance tax (IHT) planning but still retain access to their original capital. A loan trust involves the settlor lending money to the trust, rather than gifting it outright. It gives flexibility: the settlor can waive portions or all of the loan whenever desired, gradually giving up access if needed. The loan is interest free and repayable on demand. The growth on the trust assets is outside the settlor’s estate for IHT purposes (though the outstanding loan remains part of the estate). Any future growth on the trust assets occurs outside the settlor’s estate.
Loan Trusts offer significant IHT benefits, as they allow the value of the outstanding loan to remain in the estate while ensuring that future growth is outside the estate, helping to reduce the overall IHT liability for the settlor and beneficiaries.