Loan Trust IHT Calculator
Calculate IHT planning benefits of a loan trust. Model the loan outstanding in your estate, investment growth outside your estate, and eventual IHT saving at death.
Loan Trust IHT Calculator
A loan trust lets you lend money to a trust (interest-free). The original loan stays in your estate, but all investment growth accumulates outside your estate. Over time, you can draw down the loan, reducing your estate further.
Repayments reduce your outstanding loan (estate liability) and provide you with cash
Frequently Asked Questions
What is a loan trust?
A loan trust is a trust where you lend money (interest-free) to a trust you have set up. The trust invests the money. The outstanding loan remains in your estate (as a debt owed to you by the trust), but all investment growth on the loan accrues outside your estate for IHT purposes.
How does a loan trust reduce IHT?
When you die, your estate includes the outstanding loan (what the trust owes you) but not the growth. If you invested £300,000 and the trust has grown to £500,000, only the £300,000 loan is in your estate. The £200,000 growth passes to beneficiaries IHT-free.
Can I draw down the loan to reduce my estate?
Yes. You can request repayment of the loan at any time. Repayments reduce the outstanding loan (and your estate) while giving you cash. This can be an effective way to systematically reduce your estate while maintaining access to funds — more flexible than an outright gift.
What are the IHT implications on setting up a loan trust?
There is no immediate IHT charge on setting up a loan trust because you haven't made a gift — you've made a loan. No PET or CLT is created at inception. The IHT benefit comes entirely from growth accumulating outside your estate.
What type of investment is typically held in a loan trust?
Loan trusts typically hold an investment bond (onshore or offshore) due to the tax-deferred growth and 5% withdrawal facility. The 5% withdrawal rule allows the trust to make loan repayments back to you without immediate income tax. Other investments can be used but are less common.
Does the loan trust need a formal deed?
Yes. A loan trust must be set up with a formal trust deed that documents the loan terms (interest-free, repayable on demand). The trust must also operate separately from your own finances. Poorly documented arrangements may be challenged by HMRC.
Who should be the trustees of a loan trust?
Typically, you appoint independent trustees (or professional trustees) to manage the trust investment. You should not be the sole trustee of your own loan trust, as this may compromise the trust's IHT effectiveness. Professional trustee companies provide governance and continuity.
Can a loan trust be combined with a will trust?
Yes. Your will can direct that any outstanding loan balance at death is forgiven (written off) by the estate. This can be a powerful planning tool — the outstanding loan passes to the trust beneficiaries through the will, effectively removing the loan from your estate at death without losing the IHT benefit of the growth.