Flexible Loan Planning

Perhaps the most often utilised IHT mitigation strategy over the last two decades has been the ‘Gift & Loan’ or ‘Loan’ trust. The arrangement is quite simply constructed with a loan in the form of capital being made to a trust for the ultimate benefit of others.

The tax advantage of this solution is that growth on the assets (normally a life fund within an investment bond) accumulated in the trust is deemed as outside the investors estate for IHT assessment.

Typically, the loan will be repaid to the investor on a regular basis (usually by tax-deferred drawings from an investment bond) but the balance of the loan at death returns to the investor’s estate for IHT assessment. This last point reduces its tax effectiveness relative to the flexible trust arrangements but can be deemed a comfort by the investor for the very fact that the loan is repayable on demand.

The launch of a unit trust/ OEIC based solution from WAY has given investors an additional tax allowance break with the plan proceeds and growth subject to capital gains rather than the more onerous income tax rates.

The simplicity of the arrangement will particularly appeal to those who like the notion of wrapping an additional tax wrapper around an existing portfolio.  By transferring unit trust/OEICs holdings into trust ‘in specie’ there is no need to raise additional cash from deposit accounts or sale of existing assets. Conveniently, IHT on the transferred sum is then capped at current value and the capital is repayable on demand by the investor.