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 If she doesn’t use the full 5%, she can use it in the following years, until she’s withdrawn 100% of her investment.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.
