Loan Trust


The Loan Trust enables the Lender to make a gift of the growth of his or her initial investment and still retain control over it and the trust is available as a Bare or Flexible Trust.

General Features of the Trust

  • The trust only allows for one Lender.
  • The Lender is not a beneficiary but is entitled to repayment of his or her loan.
  • The trust cannot be used for existing policies.
  • The creation of the trust is neither a potentially exempt transfer or a chargeable lifetime transfer.
  • Any outstanding loan on the Lender's death will form part of his/her estate for Inheritance Tax purposes.
  • Assuming the level of loan repayments do not exceed the cumulative 5% per policy year, there is no liability to Income Tax.
  • The trust will avoid Manx Probate assuming there is a remaining trustee alive at the time of the death of the last life assured on the policy.

Flexible Trust - Key Points to Note

  • For the purposes of the ten yearly calculations in respect of potential Inheritance Tax charges, the value of the trust fund will be reduced by the amount of any outstanding loan.

The Loan Trust might be suitable for individuals who:

  • Are UK or deemed UK domiciled for Inheritance Tax purposes.
  • Can afford to gift away future growth on their capital.
  • Require full access to initial capital.
  • Require flexibility as regards to frequency and amount of capital repayments.
  • Do not wish to create either a Potentially Exempt Transfer or a Chargeable Lifetime Transfer.

Creating the trust as Bare Trust might be suitable for individuals who:

  • Have specific beneficiaries in mind.
  • Wish to avoid ten yearly charges or charges when distributions are made from the trust.
  • Wish to avoid future reporting requirements to HMRC.

Establishing the trust as a flexible trust might be suitable for individuals who:

  • Require flexibility as regards future beneficiaries.

Important Notes

Please note that every care has been taken to ensure that the information provided is correct and in accordance with our current understanding of the law and Her Majesty's Revenue and Customs (HMRC) practice as at July 2010. You should note however, that we cannot take on the role of an individual taxation adviser and independent confirmation should be obtained before acting or refraining from acting upon the information given. The law and HMRC practice are subject to change. Legislation varies from country to country and the policyholder's country of residence may impact on any of the above.