Originally posted by starstruck
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So if the trust had £100,000 of cash and then gave a loan to a borrower who pays a market rate of interest (based on the length of the loan, the credit worthiness of the borrower etc rather than some random HMRC or nominal rate), then the loan receivable is probably worth £100,000. And so tax would not be due as £100,000 less £100,000 is nothing.
If the loan were given to a very credit worthy person, interest-free and repayable in ten years, the loan receivable may be worth £10,000 to a random stranger (e.g. the BT pension fund). So making the loan would reduce the value of the trust's assets by £90,000. That would then be subject to IHT when the loan is made.
I have no idea what your loan receivable might be worth to a random stranger. Probably not a lot. But who knows. If that is right, the IHT is due on (in my example) £100,000 less £1 (or whatever) when it is made.
The rate of IHT is given by s70(6) IHTA 1984 and depends on how long the assets have been in the trust. Less than three months and it is 0% (hence an earlier comment of mine). For the next ten years is 0.25% for every three months (after that a further 0.2% for every three months).
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