Discretionary Loan Trust - Investment Bond

AndyRichards

Hi All,

I have a technical query regarding an Onshore Investment Bond held in a a discretionary trust.

The client is looking to take out his loan in full, the gain is roughly £20k so I understand that'll have to remain within the trust for the beneficiaries.

In terms of the chargeable gain, is this worked out in a similar way to bonds not held in trust? (E.G. Compare book cost v Current Value of the units withdrawn). Or is there a different way of calculating as he will just be taking out his initial loan and leaving the gain.

Obviously if this results in a gain we'll need to top-slice the money to see if this pushes him into the higher rate tax band.

Thanks,

Andy

amarshall

I had a very similar case recently where we considered taking back the full loan.

Unfortunately for your client, it is not possible to take back the capital of the loan and leave the growth. It will create a chargeable event like any other bond surrender.

AndyRichards

@amarshall said:
I had a very similar case recently where we considered taking back the full loan.

Unfortunately for your client, it is not possible to take back the capital of the loan and leave the growth. It will create a chargeable event like any other bond surrender.

Ah I see, so if he wants to withdraw his entire loan we'll have to work out the gain on that portion?

amarshall

@AndyRichards In theory, if the bond was over 20 years old and he'd never taken anything out, then using the 5% rule, he could take all the capital out and none of the growth.

Assuming that is not the case, he can max his 5%s and take the rest as part capital and part growth and you'll have to calculate the gain accordingly.

DanAtkinsonUK

Remember that the trust and the bond are separate things. The settlor has a right to call in the loan from the trustees at any time.
The trustees are investing the loan amount for the benefit of the beneficiaries. They just happen to be using an onshore bond to do it. However as the settlor is (a) alive and (b) UK res the chargeable gain falls on them...