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Loan Trust

The Loan Trust enables the Settlor to make a gift of the growth on the loan whilst still having unrestricted asset to the original loan capital. The growth on the trustee’s investment is outside the Settlor’s estate for IHT purposes. The trustees can pay back the loan by taking withdrawals from the bond.


General features of the trust

  • the trust allows for single or joint Settlor
  • the Settlor is not a beneficiary but is entitled to repayment of their loan
  • the trust cannot be used for existing policies
  • the creation of the trust is neither a Potentially Exempt Transfer nor a Chargeable Lifetime Transfer because nothing is given away on creation of the trust
  • any growth on the value of the initial investment is immediately outside of the Settlor’s estate for Inheritance Tax purposes
  • any outstanding loan on the Settlor’s death will form part of their estate for Inheritance Tax purposes.

The Loan Trust may be suitable for individuals who

  • are UK or deemed UK domiciled for Inheritance Tax purposes
  • can afford to gift away future growth on their capital
  • require full access to initial capital
  • require flexibility as regards to frequency and amount of capital repayments
  • do not wish to create either a Potentially Exempt Transfer or a Chargeable Lifetime Transfer.

Important notes

Please note that every care has been taken to ensure that the information provided is correct and in accordance with our current understanding of the law and practice at Her Majesty's Revenue and Customs (HMRC) as at August 2012. You should note however, that we cannot take on the role of an individual taxation adviser and independent confirmation should be obtained before acting or refraining from acting upon the information given. The law and HMRC practice are subject to change. Legislation varies from country to country and the policyholder's country of residence may impact on any of the above.