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Trust planning – Freeze IHT liability but keep access to capital

IHT receipts are at record levels, and more clients will be looking at ways to mitigate their IHT exposure to help ensure as much of their wealth as possible is passed on. This article explains how the loan trust can help clients retain access to their capital whilst ensuring any growth is immediately outside of their estate.

At a time when inheritance tax (IHT) impacts more families, and IHT receipts are at record levels, more clients will be looking at ways to mitigate their IHT exposure to help ensure as much of their wealth as possible is passed on.


A common barrier to trust planning is that clients don’t want to lose control or access to their money. Retaining access to capital but gaining IHT benefits may sound too good to be true, but the loan trust can achieve exactly that for your clients, helping them freeze their IHT liability.

How the loan trust is different

A loan trust can provide clients with access to the full amount of capital as and when they need it. The capital is not gifted away, rather ‘loaned’ to the trustees. The client (settlor) has a right to ask for capital to be returned at any point in time, perhaps on a regular basis to provide them with an income, knowing they can access more if they need to.


It is the growth on the capital which is IHT efficient. The growth is gifted into trust and cannot be accessed by the client. It is therefore considered outside of the client’s estate for IHT purposes, and can pass to beneficiaries free of IHT.


This creates an ideal first step for clients as it enables them to retain access to their capital whilst ensuring any growth is immediately outside of their estate. This can have the effect of ‘freezing’ their estate value as the loan value will never increase.


If, at a later stage, the client is in a position to gift away some of the retained capital, they are able to do so. This is achieved by waiving (in part or full) the outstanding loan. The value of the amount waived is a gift for IHT purposes.

Clients can benefit even more from our Enhanced Loan Trust

Old Mutual International’s Enhanced Loan Trust is a packaged solution, which combines the Loan Trust together with a professional trustee, Old Mutual International Trust Company, and investment in an offshore bond.


A professional trustee may help remove another barrier for clients, making trust planning simpler and more efficient to manage on an ongoing basis. The role of trustee can be complicated, and having a professional trustee to manage the necessary administration and tax returns can relieve the burden from friends or family members.

Improvement to the Enhanced Loan Trust

The Enhanced Loan Trust has been extended to include the European Portfolio Bond available from Old Mutual International Ireland dac, in addition to the International Portfolio Bond from Old Mutual International Isle of Man Limited. This will provide greater choice and flexibility and will open up new opportunities for those clients who prefer to invest in an offshore bond situated in Ireland.


To access the Enhanced Loan Trust material click on the links below:

Enhanced Loan Trust brochure

Enhanced Loan Trust reasons why

Old Mutual International Trust Company Loan Trust Application Form – European Portfolio Bond

Old Mutual International Trust Company Loan Trust Application Form – International Portfolio Bond

 

The information provided in this article is not intended to offer advice.
It is based on Old Mutual International’s interpretation of the law and HM Revenue and Customs practice as at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Tax relief and the tax treatment of investment funds may change and the value of any tax relief will depend on the investor’s individual circumstances.


Old Mutual International cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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