Loan Trusts

A common problem we face is that we want our money to work hard for us, but then we worry that if we do well, the tax man is going to take 40% of it when we die.

So, what if we could place a capital lump sum in an investment and all the growth was free of Inheritance Tax from day 1.

A normal gift trust does this, BUT you can never get your capital back, so you need to be 100% sure you will never need this money.

As an alternative, a loan trust means you can take your money whenever you want, with no restrictions. This means that whatever you invest remains in your estate for IHT but the growth does not.

Whilst you can set up regular withdrawals or take ad-hoc withdrawals, in reality many people don't take the capital back and this results in substantial investment growth, which is IHT-free.

For example, if you invested £200,000, never took back any money and lived for 25 years, you could expect a return of around £1,966,941 which would all be free of IHT. The original £200,000 would still be in your estate. This assumes a rate of return of 10% per annum.

Even at 5%, the IHT free pot would be £477,271.

You could combine this solution with other IHT planning,such as joint-life second death insurance (only suitable for married couples) or the lifestyle trust.

More News, Insight & Opinion