PruAdviser on-line services will be unavailable from 20:00 on Saturday 16 October until 12:30 on Sunday 17 October for website maintenance.

The Planning and Practicalities of Loan Trusts

Session: 5 November 2020

The Loan Trust has been a long established feature of the Inheritance Tax (IHT) and Estate Planning landscape. The Loan Trust isn't the most IHT efficient of your standard insurance companies trusts.

But it's operation and flexibility means it's an essential part of the financial planners toolkit. It's a useful solution for everything from probate planning to having your client's make that first step to giving some of their money away. 

This session should help you gain an understanding of: 

  • Why you would consider a Loan Trust 
  • How Loan Trusts work 
  • The practicalities of writing and administering loan trust business 
  • Planning considerations when recommending a loan trust

Presenter – Barrie Dawson - Technical Manager

Test your knowledge

1. It’s only withdrawals taken from the insurance bond to repay the outstanding loan to the settlor that count towards the 5% tax deferred allowance on the bond. 

    a) True 

    b) False
 

2. John sets up a loan trust for £100,000 but sadly dies within seven years.  He received loan repayments of £23,600 which he spent.  The bond was valued at £105,000 when he died.  In relation to the loan trust what value is included in his estate for inheritance tax purposes? 

    a) 28,600 

    b) £128,600 

    c) £100,000 

    d) £76,400 
 

3. Harry sets up a discretionary loan trust for £200,000.  He doesn’t take any loan repayments and after seven years he decides to waive the entire loan.  Which of the following statements is true? 

    a) Waiving the loan is a Potentially Exempt Transfer (PET) 

    b) Waiving the loan is a Chargeable Lifetime Transfer (CLT) 

    c) Waiving the loan is not a PET or CLT because it’s a loan trust 

    d) Waiving the loan is not a PET or CLT because it was waived after seven years
 

4. Sue set up an absolute loan trust for £150,000 then later topped up the bond with a gift of £50,000.  Her two grandchildren are equal beneficiaries.  Withdrawals of £30,000 have been taken to pay ongoing adviser fees and £20,000 loan repayments.  The bond is now worth £400,000.   The trustees have established there would be no tax due if the bond is surrendered.  If the trust is wound up how much of a loan repayment will Sue receive and how much will each grandchild receive?

    a) Sue will receive £180,000 and each grandchild will receive £110,000 

    b) Sue will receive £170,000 and each grandchild will receive £115,000 

    c) Sue will receive £130,000 and each grandchild will receive £135,000 

    d) Sue will receive £120,000 and each grandchild will receive £140,000
 

CPD certificate

To claim your CPD certificate, click here.

"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company. The Prudential Assurance Company and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc, a company incorporated in the United Kingdom. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.