I assume that the loan trust is discretionary as well. If so, I don’t think that it will have no nil rate band for the purposes of periodic charge calculations - rather, it will have whatever the nil rate band is at each ten-yearly anniversary, reduced by £325,000. Had the loan trust been created first, however, both trusts would have had a full nil rate band for the purposes of periodic charge calculations.
It appears that, for loan trusts reaching a ten-yearly anniversary, there is a difference between the figure used to calculate the periodic charge and that used for the limit for the reporting requirement. When a discretionary loan trust gets to a ten-yearly anniversary, it is perfectly acceptable to deduct the outstanding balance of loan from the value of the trust assets (probably an investment bond) when calculating the amount on which any periodic charge is based. However, even if there is no periodic charge, consideration needs to be given as to whether it is necessary to send an account to HMRC.
The IHT Manual (see http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM06124.htm) states that:
Where a ten year charge has arisen and the settlement passes the general conditions, it will qualify as an excepted settlement where the value of the notional aggregate chargeable transfer specified in IHTA84/S66(3) does not exceed 80% of the nil rate band.
I am a little puzzled by the opening words (“Where a ten year charge has arisen”) but, presumably, a ten year charge arises even if it is calculated to be nil. The Manual then goes on to say:
For the purposes of calculating the value of the notional chargeable transfer, no relief that might be due should be deducted AND ANY LIABILITIES THAT MAY BE DEDUCTIBLE FROM ASSETS IN CHARGE SHOULD ALSO BE IGNORED [my emphasis].
This appears to be based on regulation 4 of the Inheritance Tax (Delivery of Accounts)(Excepted Settlements) Regulations 2008 (see http://www.legislation.gov.uk/uksi/2008/606/regulation/4/made). You will see
that sub-regulation 4(5) says:
Where, in reliance on these Regulations, no person was required to deliver an account under section 216 of the property comprised in the settlement on an occasion of a chargeable event under section 65 in respect of the settlement in the ten years before the chargeable event in paragraph (4), the amounts on which any charges to tax were imposed under section 65 shall, for the purpose of determining the value transferred by a chargeable transfer of the description specified in section 66(3), BE WITHOUT DEDUCTION FOR LIABILITIES or reliefs contained in the 1984 Act [my emphasis].
It seems to me that the effect of the words in red is that, for a discretionary loan trust, where the value of the bond is greater than 80% of the nil rate band at a ten-yearly anniversary, a report is required even if the value of the trust fund, net of the outstanding balance of loan, is less than 80% of the nil rate band. Having said that, I did find the Regulations and the provisions in the IHT Act very convoluted, and I ended up going round in circles.