| Loan Scheme Trusts |
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Loan schemes are particularly suitable for individuals who want to retain access to their original capital but use the scheme as a vehicle to avoid paying increasing Inheritance Tax on the growth of that capital over time. With this type of scheme, all growth on the original capital remains outside of the individual’s estate for the purposes of Inheritance Tax. Loan Schemes work in the following way: • You establish a Trust and loan the Trust an amount of money. • Under the Trust rules you set up the right to have the capital paid back to you in full or partially in smaller staged payments • The Trust invests the original capital to produce growth (often in an Insurance Bond or similar) • Note that any amount of the original capital loan not repaid at the time of death will form part of your estate for IHT purposes, but the capital growth will not The illustrative table below shows the potential reduction of IHT payable if Mr. Adams loaned his Trust £100,000. The table shows the effects after 5 years during which we assume that the original £100,000 would grow to £150,000. In Option 1 Mr. Adams does not take any repayments from the loan and in Option 2 he takes £5,000 per annum in repayments. These two illustrations are just two possibilities of many that can be used to help reduce or avoid Inheritance Tax liability.
*Assumes reduction in growth after £5,000 repayments are made
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Financial Issues Inheritance Tax Loan Scheme Trusts
Financial Issues Inheritance Tax Loan Scheme Trusts