Loan trusts

amarshallamarshall Member, Moderator

We have a (non-imaginary) client who has a loan trust. It contains a small GIA and a large offshore bond.

Am I right in thinking that the best way to take back (part or all of) the original loan to the trust, is to assign policies from the bond back to the settlor?

Encashment and then repayment would be taxed at trust rates so is not such a good plan.

Thanks

Andy

Comments

  • Taxable entity for a bond held in trust is the settlor whilst they are alive and resident in uk for income tax. Assuming your client is the Settlor then no need to assign first as tax situation is the same.

  • amarshallamarshall Member, Moderator

    Great. Thanks @richardgough

    Either way its not pleasant on the tax front because taking back the original loan will take the client through the 60%/40%/45% tax rates!

  • benjaminfabibenjaminfabi Moderator
    edited March 2019

    Why not take it as part of the 5% deferred amount? Also, the original loan is a return of capital. It is income only to the extent that there is a chargeable event on the segments. And if you take a partial within all segments' 5% then there is no chargeable event.

    Does the GIA, using the CGT exemptions produce a better outcome? I can't imagine it's fun for the trustees, holding a GIA in a discretionary trust.

    Benjamin Fabi 
  • amarshallamarshall Member, Moderator

    The loan was £1m and they need if not the whole lot, most of it back.

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