Pay off mortgage or take out Loan Trust for IHT

flick52

Hi - this is my first post, so all help welcome.

Background - I have no spouse or children, am 52, good health, and if I popped off tomorrow, there would be IHT for my beneficiaries to pay, which they could not afford.

I have a £200,000 mortgage.

I have the opportunity to pay off £150,000 of mortgage, or being advised to take out an Investment Bond Loan Trust with the £150K in order to:

- retain the potential to use the capital in future
- start a trust to provide some funds for my beneficiaries that would be outside my estate & help them pay IHT whenever
- get 5% tax free income from it to help repay mortgage

The trust has extra advantages, but I can't help feeling more comfortable with the idea of repaying the mortgage.

What do others think?

Thanks a lot

esthomizzy

I'm afraid I can't help with answering but I would be very interested in what answers/suggestions people do come up with.

Surely the interest payments for you to cover on the loan in the meantime would outstrip the investment potential of the money in the trust (I don't know I'm just pondering?).

dimbo61

you are in good health and could live to 90 or 100 years old !
you have a £200k mortgage at what rate ?
Who wants you to take out a trust ? and how much do they get ?
If you clear 3/4 off your mortgage you may be able to clear the rest long before you retire and build up some savings for a LONG and happy retirement.
Do you or any one else know what the interest rate on your HUGE £200k mortgage will be in 2/3/5/10 years time !
Why would you get 5 % tax free and is that guarenteed ?
I would clear the mortgage and save into a pension and cash ISA,s at the moment.
If you have savings of £150k in trust and get made redundant/ retire through
ill health this will affect any benefits !
having your home paid for will not and you can always sell up and trade down
to something smaller and more suitable.
Go and see a tax adviser GOOD LUCK

flick52

Thanks for the opinions. & I agree with it all.

The 5% tax free income is because the trust would be invested in an Investment Bond, and this is one of its qualities.

Its correct that I would still pay out the difference between the 5% and whatever mortgage rate I get - currently looking at 5.74 tracker or 6.45 Fixed. So it does cost me some mortgage interest.

5% isn't guaranteed because its invested in stock market.

The benefits of the trust are that the money is "willed in trust" to whoever I please, but still mine for if I need it. Its a way of reducing IHT.

I have now retired and its a question of whether Igive up these lump sums to pay off the mortgage or keep some or all in a trust so I can access them if need be........

As you both infer - paying off the mortgage still sounds good!

But thanks a lot

getmore4less

"Investment Bond"

Now these things usual cause the alarm bells to ring on the MotleyFool(uk) a finance site that has some very smart people that know about all this sort of thing.

I think the primary concern it VERY high charges, and extremely good commisions for those that recommend them. BARGEPOLE is a term often used.

I would look very very carefully at this.

As for IHT planning those on the "Fool" are fairly good at that stuff also.

How serious is the is IHT planning, plenty of opportunities to give it away or just spend it and still live for 7years so no problems as long as you don't need it for health/home care and they want it back

If too much is tied up in property there will come a time that you will probably want to change this setup anyway.


IHT comes from the estate so if it is due they can afford it.