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Investments Estate Planning Inheritance Taxation
What is a loan trust and what could it do for you and your beneficiaries?
Amy Woolliscroft10th August 2026
Since the Autumn Budget in 2024, inheritance tax has been a hot topic, with more families, both farming and otherwise, now having to consider the impact of an inheritance tax (IHT) bill on future generations for the first time.
You may have friends who have set up trusts to help protect their assets for the next generation, but trusts can sound scary and very ‘final’, like you will lose control of your funds.
What if in time you need care, or other unexpected costs come up later in life – if you’ve set up a trust and put all your savings in it, you’re stuck – right?
Well, not necessarily, have you heard of a loan trust?
A loan trust is an estate planning arrangement that can help reduce a future IHT bill while allowing you to retain access to the original amount you invested, continuing to provide flexibility and access for you.
The basic idea is:
- You lend money to a trust instead of giving it away outright.
- The trust invests the money, often through an investment bond or other investments.
- You remain entitled to have the original loan repaid whenever you choose.
- Any growth on the investments belongs to the trust, not to you personally, and falls outside of your estate.
- You can control who administers the trust (the trustees) and how many beneficiaries you name – this could be children or grandchildren, for example.
Because the growth is outside your estate (assuming the trust is properly structured), it may not be subject to inheritance tax when you die. A trust is a legal entity so it’s essential that it is set up correctly or you may create more of a problem than the original one you were trying to solve!
Let’s look at an example:
- You lend £500,000 to a loan trust.
- The trustees invest it and 10 years later, the investments have grown – based on 5% annual return and no capital withdrawn this would see around £300,000 in growth.
- You are still owed back £500,000 (the original amount you lent – the outstanding loan).
- Any growth belongs to the trust beneficiaries rather than your estate and is not subject to inheritance tax.
If you die with the loan still outstanding, the original loan to the trust (£500,000 in this example) is normally still part of your estate for IHT, however the growth is generally outside your estate, potentially saving up to 40% IHT on that growth (depending on your available nil-rate bands and reliefs). What is more, with this example by growing your £500,000 capital within a trust to £800,000, you potentially save £120,000 on inheritance tax (£800,000 @ 40% = £320,000 IHT bill vs. £500,000 @ 40% = £200,000 IHT bill).
A loan trust can be attractive if you want to reduce the value of future growth in your estate but aren't comfortable making an outright gift because you think you may need access to your capital later. This can be flexible and you could withdraw at an annual rate e.g. 5% of your original loan per annum or take the whole initial capital out if it was needed, leaving the growth still invested.
It also allows you to appoint trustees that you have confidence in to control how the beneficiaries receive those assets, the growth, after you have passed away.
It’s important to remember that the original loan remains in your estate for IHT purposes unless it is withdrawn over time. Unlike an outright gift, the amount you lent does not immediately reduce your estate.
We also know that investment values can fall as well as rise, trusts incur legal, tax, and trustee responsibilities, so this must all be considered. Investments can rise and fall in value, so returns aren’t guaranteed. Over shorter periods, these fluctuations mean you could get back less than you invest. Many people invest for the longer term because investments have historically offered higher long term returns than cash savings — but outcomes will always depend on time, markets and individual circumstances.
Loan trusts are only one of several estate planning tools. Alternatives that might be suitable for your financial planning needs include:
- Lifetime gifts.
- Discounted gift trusts.
- Bare, discretionary, or other trust structures.
- Pension planning (which can have significant estate planning advantages in some cases).
The right approach depends on factors such as your age, health, income needs, the size of your estate, and who you want to benefit.
Because inheritance tax rules are complex and can change, it's worth taking advice from a specialist financial adviser with estate planning expertise before setting one up. Alongside a solicitor, they can also help ensure the trust is structured appropriately and that the investments and tax treatment fit your circumstances.
How can Accession help?
Inheritance Tax planning is about joined up thinking and early conversations to ensure that you not only leave a meaningful legacy, but also protect your interests and plans during your lifetime.
Accession specialises in providing high-quality, face-to-face inheritance tax and succession planning for farming families, professionals, rural businesses and families in Bedfordshire, Cambridgeshire, Northamptonshire and across the East of England.
Our Accession financial advisers – Emma Wilcock and Richard Jones - are Chartered Financial Planners and Fellows of the Personal Finance Society, accolades held by a very small number of financial advisers in the UK and meaning we are fully equipped to help guide you through planning for the future. They are also both Top-Rated Financial Advisers with VouchedFor, the independent review platform for professional services.
If you or someone you know would benefit from speaking to one of our advisers about planning for the future, please do contact us on 01832 279170 or accession@sjpp.co.uk to discuss your requirements and get an appointment in the diary.
Trusts are not regulated by the Financial Conduct Authority.
SJP Approved 10/8/2026