Understanding Loan Trusts
Up to 60 CPD minutes
Introduction
This module should take around 90 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 90 minutes can be claimed.
Outcomes
- Determine the IHT impact on a settlor’s estate from using a loan trust including any outstanding loan
- Explain how a loan trust is created and why bonds are often used as the preferred trustee investment option
- Describe the options for dealing with any outstanding loan on the settlor’s death
Learning material
CPD minutes: up to 90
Post learning assessment
Question 1
a. The full bond value (£275,000) falls outside his estate.
b. The full bond value (£275,000) plus previous withdrawals (£10,000) would be added to his estate.
c. The full loan value (£200,000) is outside his estate.
d. The outstanding loan value (£190,000) is included in his estate.
Question 2
Question 2
a. The 5% tax deferred withdrawals can be used to make loan repayments without creating a tax charge.
b. As bonds don’t produce income, trustees won’t have this to distribute to beneficiaries with income rights.
c. Trustees won’t have any tax reporting responsibilities until a chargeable gain occurs.
d. A settlor’s request for an ad-hoc loan repayment above any unused 5% tax deferred allowance will be subject to income tax.
Question 3
Question 3
a. The trustees do not need to repay the loan to the estate.
b. The outstanding loan of £250,000 is still included in Max’s estate for IHT.
c. The trust was created more than 7 years ago so is not included in his estate for IHT.
d. The investment growth of £30,000 and loan repayments of £150,000 are outside the estate for IHT.
Check your answers
d. The outstanding loan value (£190,000) is included in his estate.
d. A settlor’s request for an ad-hoc loan repayment above any unused 5% tax deferred allowance will be subject to income tax.
c. The trust was created more than 7 years ago so is not included in his estate for IHT.
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.