Gift and Loan Trust

 

A trust is a way of managing assets (such as money or investments). It’s a legal arrangement where someone (the settlor) puts assets into a trust and appoints a person or group of people (the trustees) to look after them, for the benefit of a group of people (the beneficiaries). There are various types of trusts, with different features and benefits.

Our Gift and Loan Trust

Set up the trust with a £10 gift and lend a sum of money to the trustees on an interest-free, repayable on demand, basis. The trustees will then use this lump sum to take out one of our investment bonds*. 

Once the trust is fully set up, you can have regular or ad hoc withdrawals from the lump sum you’ve loaned to the trust. However, you can’t benefit from any of the growth on the trust fund.

Accessing your money

With a gift and loan trust, you can have access to your outstanding loan at any time. This means you can ask the trustees to withdraw money from the investment bond as loan repayments.  You won't be able to benefit from any growth on the trust fund.

This trust can be set up on either absolute (bare) or discretionary basis.

Absolute (bare) Gift and Loan Trust

With a bare trust you can’t change the beneficiaries, so you’ll need to be certain about who you choose. 

You can either take repayments of your loan or gift all your outstanding loan to the trust. A gift of the loan to bare trust is a potentially exempt transfer (PET) for inheritance tax purposes.

After your loan has been fully repaid to you, or gifted in full to the trust, the trustees will manage the trust fund for the beneficiary(ies) until they reach 18 years old. The trustees must then distribute the trust fund to the beneficiary(ies).

Discretionary Gift and Loan Trust

You can either take repayments of your loan or gift all of your outstanding loan to the trust. A gift of the loan to discretionary trust is a chargeable lifetime transfer (CLT) for inheritance tax purposes.

After your loan has been fully repaid to you, or gifted in full to the trust, the trustees will manage the trust fund for the trust beneficiary(ies). As the trust is discretionary, the trustees manage the trust fund at their discretion. This means the trustees make the decisions on which of the potential beneficiaries will benefit, by how much, and when the benefits will be distributed out.

Products that can be used with this trust

You can use the following investment bonds with our Gift and Loan Trust. Click on the links to find out more.

Premiere and Premiere Europe Account

Delta Account

Prestige accounts

What are the tax implications?

Income tax may be payable if a withdrawal from the investment bond causes a chargeable event gain. The person who needs to pay the income tax will depend on if the trust is set up on absolute (bare) or discretionary basis.

 The outstanding loan always stays in your estate, which means it’s in scope for inheritance tax.

Tax rules depend on individual circumstances and may change. If you need more information on tax, please speak to an adviser.

 How many trustees are needed?

You’ll always need a minimum of two trustees. A donor or settlor is automatically a trustee.

If there are two donors or settlors, for example married or civil partners, then a third trustee will need to be appointed.

 Can I change the beneficiary?

This depends on the type of trust you use.  If you use a bare version of this trust, you won’t be able to change the beneficiary. If you choose a discretionary version of this trust, the trustees will decide who benefits after your death, how much they get and when. You can tell the trustees you’d like to change the beneficiary, but it is ultimately their decision.

 Can I remove a trustee?

You can’t remove a trustee. However, if a trustee dies, wants to be discharged, refuses to act, or is no longer capable of being a trustee, you can appoint a new trustee in their place.

 Can I appoint more trustees?

Yes, as long as you have no more than four trustees at any one time.

 What are the steps to setting up our Gift and Loan Trust?

Steps to setting up a Gift and Loan Trust:

1. You set up the Gift and Loan Trust with us.
2. You then lend a sum of money to the trustees in accordance with the loan agreement.

 The trustees invest the money. This means they apply for the investment bond.

 

What happens if I decide that I don’t need my loan back?

You can tell the trustees that you don’t want your loan back and choose to make the loan a gift. This means you won’t be able to take any more loan payments from the trust.

 How many loan agreements need to be filled out?

You’ll need to complete one loan agreement for each donor or settlor, as well as one trust agreement for each application.

So, for a joint trust, where there are two donors or settlors, both individuals will need to complete a loan agreement. In this instance, there’ll be two loan agreements and one trust.

Deeds Bare Gift & Loan Trust Loan Agreements for additional loans to trustees Bare Gift and Loan Trust Deed and Loan Agreement Discretionary Gift & Loan Trust Loan Agreements for additional loans to trustees Discretionary Gift & Loan Trust Deed and Loan Agreement Deed of Appointment/Retirement of trustees Loan Repayment Waiver Deed Nomination of beneficiary

Guides Gift and Loan Trust Client Guide Discretionary Gift & Loan Trust Tax Notes

Looking for any other form or document?

View all documents

Professional Trustee Service
We’ve partnered with ZEDRA, a leading trustee service provider, to offer a Professional Trustee Service for our customers. If you intend to use this service, please see our dedicated  Professional Trustee Service webpage  for more information, and Zedra specific deeds. Please do not use our standard trust deeds for the Professional Trustee Service

Leave an inheritance and access your money

About Karen                

Karen is 45, married and in good health. She’s recently inherited £200,000 from her late aunt, which she has no immediate need for. Her only daughter has just had a baby, a boy called William.

Karen’s goals

Karen wants to invest the money and be able to access the funds as and when she needs them. She also wants to leave an inheritance for her new grandson.  

Choosing a Bare Gift and Loan Trust

With the help of an adviser, Karen decides to put her £200,000 inheritance into our Bare Gift and Loan Trust. With this trust, Karen can provide a future inheritance for William. The trustees can also withdraw money for Karen from the loan amount, whenever she needs.

The trustees can also make payments to William, as long as there’s enough held to repay the loan if Karen needs it back.

Tax-efficient withdrawals

When making withdrawals, Karen makes use of the 5% tax deferred withdrawal facility. This means she can withdraw up to 5% of the original investment every year, without the need to pay any immediate tax on it. If she doesn’t use the full 5%, she can use it in the following years, until she’s withdrawn 100% of her investment.

Reduce inheritance tax

If Karen’s situation changes and she decides she doesn’t need to access the £200,000, she can always waive the outstanding loan. This will be a potentially exempt transfer, which means that after seven years it’s no longer in scope for inheritance tax.

The investment growth is held for the benefit of her beneficiary, William. This means it’s not in Karen’s estate, so there’s no inheritance tax to pay on it.

What are the risks?

The value of your investment can go down as well as up and you may get back less than you invest. The way investments performed in the past is not a guide to how they’ll perform in the future.

Tax rules depend on individual circumstances and may change. Speak to an adviser, if you need more information on tax.