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For Professional Clients Only

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A large number of investors have historically used Loan Trusts to “freeze” the value of assets for inheritance tax (IHT) purposes. This allowed IHT planning to be undertaken whilst giving the settlor access to capital/ income.

How do they work?

The settlor lends money to the trust and has access to capital, monthly, annually or ad hoc as loan repayments.

The settlor does not have access to the growth on the asset as this belongs to the Trustees. As such it is outside the settlor’s estate as it does not belong to them.

What is the Issue/Opportunity?

Many investors settle into Loan Trusts and have taken no withdrawals.

This means all the original capital is still inside their estate. In fact, even if investors take 5% loan repayments over the year, unless they spend this “income”, it is still inside their estate. Usually Loan Trusts have been set up with Investment Bonds to allow 5% withdrawals. Taking Loan repayments at 5% means it takes 20 years to get the capital fully outside the estate.

Potential solution

The settlor recalls the original loan from the Trustees*. This capital is then invested into a Business Relief (BR) solution, either for growth or capital preservation.

The client has access to the capital or income (subject to liquidity) and IHT planning takes 2 years from the date of investment instead of 20 years.

*Note – there may be income tax implications as this will be a chargeable event if the underlying Trust asset is an Investment Bond.

Capital is at risk and the investor may not get back the amount invested

For more information about how our tax products can help with this scenario, please contact our tax team using the details below.   |   020 7071 3920   |

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Important Information
Issued by LGBR Capital Limited, Candlewick House, 120 Cannon Street, London EC4N 6AS. LGBR Capital Limited is an Appointed Representative of Mirabella Advisers LLP, which is authorised and regulated by the Financial Conduct Authority number 606792. This document should not be regarded as constituting advice in respect of legal, taxation, investment or other matters. This document is intended to be communicated solely to persons that fall within the FCA classification of ‘Professional Client’. LGBR Capital Limited operates as distributor of the investment products and strategies of other selected providers. LGBR Capital does not manufacture investment products itself. Past performance is not a guide to future performance; the value of an investment and income from it can go down as well as up. Contact the sender of this document if you would like further information about any of the funds, including charges, expenses and risk considerations. Prospective investors are advised to consult their own professional advisers before contemplating any investment. No representation or warranty expressed or implied is made or given by any person as to the accuracy or completeness of the information contained in this email and no responsibility or liability is accepted for any such information. This material may not be distributed, published or reproduced in whole or in part.

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