Loan trust after bereavement

ossie48

I've already posted this in the deaths, funerals and probate section with no reply. I know financial advisors and accountants frequent this forum so I'm hoping someone can help. We're currently in the process of completing an IHT400 for inheritance tax purposes and are struggling to see where we declare the final figures for the trust which are quite substantial and form part of the estate.

I've even tried the HMRC IHT helpline ,they couldn't give me an answer and told me to seek advice elsewhere. I find this odd as they're the people who insist we declare everything like this.

As I understand it the way this works is the deceased set up a trust, loaned x amount to the trustees who invested it for the benefit of the trust beneficiaries. Any gains are free from IHT. On death the bond was sold, the loan repaid and now sits as cash waiting to be claimed by the executors. 

After extensive googling the only mention I can find of a similar situation is to declare it either as  a 'Jointly owned asset' (IHT404). I presume then at time of death the money, although loaned  was technically jointly owned by the deceased and the trustees ?

or

A debt due to the estate IHT 416 . The notes for the IHT give a myriad of examples but nothing that directly relates to a loan trust. The issue is the debt is not now due to the estate as its now sat there as cash but was a debt at the time of death.

Will it matter where its declared as long as its listed somewhere ie as a debt or a jointly owned asset as long as full details are supplied and HMRC can take their percentage. Any gains free from IHT can be declared in the appropriate section. 

TheGreenFrog

From your description the loan was made solely by the deceased.  Therefore the amount owed was an asset of the deceased's estate and is not jointly owed - assuming the loan was interest free then cash amount paid out and value at time of death should be the same.  Any excess of the cashed-in value of the bond over the amount owed is an asset of the trust and should have been paid out (or retained by trustees) in accordance with the trust terms (assuming the trust is a bare trust - if it is discretionary then may be more complicated), and any tax on income or gains of the trust is a matter for the trustees and/or beneficiaries (depending on the trust).

LHW99

Can't offer any help on this, but it may be worth checking whether you have a legal add-on to your home insurance. If so, they may be able to offer some guidance, although it's a rather specialised area.

TheGreenFrog

For more detailed explanation of the typical loan trusts see for example

https://techzone.abrdn.com/anon/public/iht-est-plan/Tech-guide-loan-trusts

xylophone

https://techzone.abrdn.com/public/iht-est-plan/Tech-guide-loan-trusts

Any help in the above?

Otherwise the executor could consult a specialist tax adviser and charge the fee to the estate.