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Where Taxpayers and Advisers Meet

A loan made from capital held within a Life Interest Trust.

ianbri
Posts:11
Joined:Mon Jun 11, 2012 8:22 am
A loan made from capital held within a Life Interest Trust.

Postby ianbri » Sat Mar 13, 2021 9:57 am

My wife’s assets on her death will be placed into a Life Interest Trust for my benefit with myself being the sole executor and trustee of the will. The STEP 1st edition provisions will apply which allows me to borrow capital from the Corporate Bonds or the SIPP held within the Trust.
Given this would be a loan, is there any tax payable either by the Trust or myself relating to this transaction?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: A loan made from capital held within a Life Interest Trust.

Postby maths » Sat Mar 13, 2021 11:55 pm

I'm a little concerned that as a sole trustee you may overlook that you must act at all times on behalf of the beneficiaries of the trust and balance the interests of those entitled to income with others.

What proportion of the trust assets are you intending to lend to yourself?

In principle, there are no tax consequences; none for IHT assuming interest free and repayable on demand.

ianbri
Posts:11
Joined:Mon Jun 11, 2012 8:22 am

Re: A loan made from capital held within a Life Interest Trust.

Postby ianbri » Mon Mar 15, 2021 10:57 am

My thoughts were to have as security my share of the value of the property payable into the Trust for the beneficiaries on my death.
The value of this share of property would be more than three times the maximum amount borrowed.
Equity release is apparently not available if the property was partially held in trust after one partners death.
Please confirm that any loans would be tax free.
Thanks for your help with this matter.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: A loan made from capital held within a Life Interest Trust.

Postby AGoodman » Mon Mar 15, 2021 1:38 pm

In general there is no tax on an interest free loan from a will trust to a beneficiary.

However, I am worried about your suggestion of a SIPP within a will trust. That doesn't sound at all right. The SIPP will be self-standing with a separate trustee/administrator.

ianbri
Posts:11
Joined:Mon Jun 11, 2012 8:22 am

Re: A loan made from capital held within a Life Interest Trust.

Postby ianbri » Tue Mar 16, 2021 11:20 am

I'm afraid that's my poor legal knowledge of how the Trust would be created in probate.
This would be my wife's SIPP.
I thought being part of her estate it would simply be transferred into the same Trust as the corporate bonds would be.
Does this create a problem or will the SIPP simply be in a separate Trust with the same beneficiaries?
Your help with this is really appreciated.

ianbri
Posts:11
Joined:Mon Jun 11, 2012 8:22 am

Re: A loan made from capital held within a Life Interest Trust.

Postby ianbri » Tue Mar 16, 2021 11:47 am

Just to be clear the will was for me to be the sole Trustee and the income of the residuary estate be paid to me during my lifetime
and the residuary estate held in Trust as to both capital and income for our children would all of the above still apply?
I would just like to add that this is a reciprocal arrangement.
The solicitor stated as sole trustee I could do all of the above.
Thanks for your help again.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: A loan made from capital held within a Life Interest Trust.

Postby AGoodman » Tue Mar 16, 2021 5:43 pm

A SIPP is already a trust arrangement. It can potentially continue past the death of the member to provide a pension fund for the widow(er) or children (not always) but if it didn't it would pay out a death benefit, usually in accordance with a nomination from the member. A death benefit wouldn't usually be an asset of the estate but would be paid directly to the nominated person or, failing that, at the discretion of the trustee/administrator of the SIPP.


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