Save Inheritance Tax By Protecting All Future Investment Growth

Published / Last Updated on 21/12/2023

What if?

  • We could show you a way where you keep access to all your wealth built up during your lifetime but protect all future growth from 40% inheritance tax, would you be interested?
  • We could show you a way to keep access to all your wealth built up during your lifetime but protect all future growth from any care fees means test, would you be interested?

Of course you would be interested.  Why wouldn’t you be?

The solution has been around for many years, is approved by HMRC and is called an Inheritance Loan Trust (DGT).

What is an Inheritance Loan Trust?

  • Just like a discounted gift trust, an inheritance loan trust is not as complex as it sounds.
  • You set up a very simple trust with £1.  That’s right, just £1 is given away and put in trust for your loved ones.
  • You then lend some money e.g., £100,000 or even £1m (could be cash or transferring across other investments that are subject to inheritance tax such as ISAs, general investment accounts, unit trusts and investment trusts).
  • Remember, you have only loaned your money to the trust (it is not the beneficiaries money), it is still yours.
  • You can charge interest on the loan but most people tend not to as it defeats the object of saving tax (you would pay income tax on interest received).  It should be an ‘interest free’ loan.
  • The trust then invests the loan money in an insurance investment bond.
  • Insurance bonds do not general an income (so no income tax is payable by the trust), all growth is treated as gains.
  • Any growth or gains on the investment bond are outside your estate for inheritance tax, as the growth is in trust for your loved ones.
  • You have protected future growth on assets from up to 40% inheritance tax.
  • You have not made any major gifts (it was a loan) so you have not used up any of your inheritance tax nil rate band (currently £325,000) nor have you triggered any 7 year gift clock ticking.  Any growth is automtically outside your estate and free of IHT.
  • Your original loan can be recalled/repaid (in full or in part )at any time or you may set up a 5% pa repayment facility (drawing 5% pa from the investment bond) meaning you always have full access to all your original capital
  • If the loan is repaid at 5% pa over a 20 year period, your loan has been repaid.
  • If you die and the loan has not yet been repaid, the balance of the loan is then repaid to your estate by the trust and your loved ones inherit the full 100% value of the investment growth in the trust.
  • All the investment growth is outside your estate either way.

A discounted gift trust is ideal for those that perhaps already have enough money for the rest of their lives, but do not want to lose access to their capital but would like to save taxes by ensuring that all future investment growth is in trust for loved ones and does not get hit by 40% inheritance tax.

Want some more IHT saving ideas? We could show you a way where your investment fund values remain the same, they do not fall in value, yet the value included in your estate for inheritance taxes is discounted immediately by say 50%, would you be interested?

See: IHT Discounted Gift

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