10 year charges and loans out of Trust

I have been approached and asked to consider whether the client should place more cash into (a) a family trust that is already almost at the £325K level or (b) whether to set up a new trust when the 7 year cycle has cleared. I have typically started a new trust however my client would prefer not to do this due to the administrative burden. The clients’ argument is that they don’t think they will ever be impacted by any ten year charges as they have loaned all the existing assets to their son already and plan to do the same with new cash going into the trust so that he can buy a second house. Your thoughts please…

There will be a discount at the first 10-year anniversary for property added in year 8 such that trust assets at the first 10-year anniversary may be below the threshold, but there will be no such discount at the second TYA. Whilst the first and second (contemplated) loans may be without interest or capital repayments, they are nonetheless assets of the trust and the initial sums advanced to the son will be added together to give the total trust assets at the anniversaries and the surplus will attract a charge to IHT.

Paul Storrie

Storrie and Company


If he is married and his spouse is happy to get involved, his spouse could make the proposed addition. That way, there is just one trust, but two “settlements” for IHT purposes: one “settlement” deriving from his contribution and the other from his spouse’s.
If they did that, it will be important for the the trustees to ensure that there is some reasonable way of determining what portion/value/assets of/in the trust fund is/are attributable to each “IHT settlor”, but this should not be especially difficult in the circumstances.
Other than that, there will be a little more admin, but not a huge amount.

Paul Davidoff
New Quadrant

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