Features and benefits

Eligibility

  • The settlor(s) must be 18 years or over and of full mental capacity
  • We will not normally accept trusts created under a power of attorney
  • Joint or single settlements available
  • An existing investment cannot be used to establish the Flexible Loan Trust because the settlor lends a cash sum to the trustees, who then invest this

Features

  • Freezes a settlor's potential inheritance tax (IHT) liability in respect of the investment amount
  • Ensures that any growth on the trust fund is outside the settlor's taxable estate
  • Allows the settlor access to the original capital but no access to any growth of the investment amount

IHT

  • No IHT charge or reporting obligation on creation of the trust
  • On the settlor's death, the balance of any outstanding loan will form part of the settlor's taxable estate for IHT purposes
  • Any investment growth will be outside of the settlor's taxable estate from day one
  • The settlor's IHT liability will gradually reduce where repayments are made and spent by the settlor as income, or gifted within the settlor's IHT annual exemption

Loan repayments

  • Loan repayments can be made in regular instalments to provide the settlor with income or on an ad hoc basis
  • Once the loan is repaid the settlor has no further access to the trust fund
  • If no loan repayments have been made, the settlor's IHT liability in respect of the amount used to establish the Loan Trust will be frozen at its initial value
  • Any loan balance still outstanding on the settlor's death will potentially be liable to IHT
  • Further loans can be made
  • Should the settlor decide to waive part or all of the outstanding loan at a later date, this will be treated as a chargeable lifetime transfer for IHT purposes

IHT reporting

  • IHT100 reporting requirements and IHT charges may also apply every 10 years (periodic charges) or when trust capital is paid to beneficiaries (exit charges)

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Scottish Widows Limited. Registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655.

Scottish Widows Unit Trust Managers Limited. Registered in England and Wales No. 1629925. Registered Office in the United Kingdom at Charlton Place, Andover, Hampshire SP10 1RE. Tel: 0345 300 2244. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 122129.

HBOS Investment Fund Managers Limited, registered in England number 941082. Registered office in the United Kingdom at Trinity Road, Halifax, West Yorkshire HX1 2RG. Authorised and regulated by the Financial Conduct Authority. Financial Services Register number 119223.

Scottish Widows Bank is a trading name of Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales, no. 2065. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number 119278.

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