Sharon I think the beneficiaries here would be waiving their rights to the loan in return for a slice of the trust investments so I don’t see that it can qualify as a variation fro IHT and CGT purposes.
So then you have a disposal on transfer by the trustees of the relevant investments so that there would be CGT on that disposal to think about.
Could the trustees appoint the trust fund to the beneficiaries in specie so that they take the benefit of the bonds but also take on the liability to the debt. If the same people as the Will beneficiaries they could then have the right to payment of the debt assigned to them as part of their shares of the estate, thus offsetting liability and payment right.
However then you need to consider the effect of that appointment out of trust - exit charge for IHT? CGT on exit unless holdover can be claimed.
Simon Leney
Cripps LLP