Gift and Loan Trust
Inheritance tax planning with access to your money
With this trust, you loan the trustees a lump sum, on an interest-free basis. As it’s a loan to the trust, you’ll get unlimited access to the outstanding loan, taking regular or ad hoc payments. The outstanding loan stays inside your estate so is in scope for inheritance tax. However, you won’t need to pay inheritance tax on any investment growth.
How the trust works
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 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.
A bare or discretionary trust?
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.
Tax
Income Tax
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.
Inheritance Tax
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. Speak to an adviser, if you need more information on tax.
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. Tax rules depend on the type of investment and individual circumstances and may change.