The Institute for Public Policy Research wants income tax and capital gains tax to change. With regard to capital gains tax, which of the following does not change anything?
a) Replace CGT annual exemption with an “allowance” of £1,000
b) Removing the CGT exemption on death
c) Reinstate taper relief for capital gains tax purposes
d) Abolish entrepreneurs’ relief
correct answer C.
We provide an overview of how a loan trust could be a suitable estate planning solution for those who are unsure whether or not they require access or wish to make a gift
Quite simple really, you lend the money to a trust and all the money NOT repaid still sits in the trust, but remains in your estate. But the money you’ve had back has been spent on daily living, and that’s what you live off.
So the trust, after its repaid the initial loan, is IHT free.
The trust is set up with a loan of cash to trustees.
Trustees then invest the lent amount in a bond or non income producing ETF on behalf of the trust beneficiaries. Try not to produce an income, because that triggers a tax return and added complexities.
The loan itself is not a gift for IHT purposes as it remains an asset in the individual’s (settlor’s) estate and they get withdrawals back again to live off.
Invest £200,000 in a life insurance investment bond and take 5% pa.
If you die after 10 years then £100k has been withdrawn, and the IHT on £100k inside the trust. There will still be 40% tax payable on that £100k, but not on the whole amount, and if the life insurance investment bond is now worth £300k then the growth of £200k is IHT free.