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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Life Policies: life policy linked with a loan and inheritance trusts: original scheme: revised scheme following legislative changes

A revised version of the original scheme which circumvented FA86/SCH20/para5 (4) was brought out. Under this version the original policy was not put into a settlement but into a bare trust for the absolute benefit of a named beneficiary.

More recent versions of this scheme do not always have the initial gift into trust. Instead the trust is established and the settlor then makes the interest free loan to the trustees, who invest the funds, usually in an insurance bond. These schemes are also not caught by FA86/SCH20/para5 (4). The amount of the loan outstanding remains an asset of the settlor’s estate, but usually repayments will be made during the settlor’s lifetime to reduce the value to be included in the estate at the date of death