Loan from Excluded Property Trust

I have a client who set up an excluded property trust before becoming deemed domiciled in England.

Client would now like to take a loan from the trust for £2,500 per a month for the foreseeable future. The Trust deed makes provision for loans to beneficiaries and trustees have a discretion with regard to charging of interest.

I need to draft a loan agreement to this effect. Do any members foresee any problem with this arrangement?

Mahendree Naidoo
Kingston Smith

I take it the client is within the beneficiary class, so can validly
receive a loan.

Whilst I will leave it to others to comment on any possible income tax
or CGT issues, for IHT purposes the debt will be treated as being a UK
asset, potentially bringing the trust into the UK IHT net.

I would recommend that the loan be documented, and reviewed on a regular
basis to reduce potential for HMRC to try and argue that it is a payment
in the nature of income, etc. You might even want to stop it

Whilst, if documented, you can assert the loan to be payable outside of
the UK, in order to try and retain excluded property status, I suggest
you obtain case specific advice on such aspects from a recognised
adviser in that field.

Paul Saunders

Having noted that no one else has commented further I would endorse Paul’s
recommendation to take specialist advice.

Your client will be a debtor of the trust and as such the loan to your
client will be an asset of the trust.

Whilst specialty debts e.g. a debt created by a deed had long been
considered to be located where the deed was sited early in 2013 HMRC stated
that they now consider that, like other types of debt, specialty debts are
located in the debtor’s country of residence.

Consequently as your client is UK resident HMRC will consider the loan
(trust asset] not to be excluded property.

In addition S633 ITTOIA 2005 could well result in the loan have untoward
income tax implications for your settlor client.

Andrew M Mortimer