It is possible to use a trust to reduce your inheritance tax liability. There are two types that can easily do this in a cost effective way. Often they are used in conjunction with an investment bond (also called an insurance bond)

Discounted Gift Trust

Sometimes referred to as “Discounted Gift Trusts” or “Discounted Gift Bonds” or even “Discounted Gift Plans” – it is a method of avoiding Inheritance Tax which:-

  • Immediately reduces the value of your estate for IHT purposes, even if you die within seven years
  • If you survive for seven years after taking one out it reduces your estate even further for Inheritance Tax purposes
  • Provides a method of taking funds from the plan, but keeping them held in trust and outside of your estate
  • Allows any remaining fund in the event of your death to be passed to your loved ones
  • It is suitable for single people and couples

Gift and Loan Schemes

Gift and Loan Schemes, which are also known as Loan Schemes, are a popular way of reducing your Inheritance Tax liability without losing access to the capital. How it works:-

  • You establish a trust, and loan the trust money
  • The trustees invest this in an insurance company bond
  • You reserve the right to have the loan paid back in full, or have partial repayments
  • Any growth on the bond falls outside of the value of the estate on death
  • The amount of loan not repaid on death forms part of the deceased’s estate
  • The main advantage is that it puts further growth on money outside of the estate

It does not reduce his liability to inheritance tax but stops it increasing.

A Gift and Loan Scheme (or Loan Scheme) is generally suitable for people who want to retain access to their capital, but do not want to their estate to increase in value any further.

If you want advice on how to reduce your tax, or have a question, or just want to have a chat about reducing you tax liability with a UK Qualified Independent Financial Adviser, then phone now on 01793 686393 or contact us online.