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A gift and loan trust is where the settlor makes a small gift into trust, possibly by way of an insurance policy and settles it on trusts for the benefit of others and from which the settlor is entirely excluded. »Ê¹ÚÌåÓýappy then make a substantial interest free loan to the trustees, repayable on demand. »Ê¹ÚÌåÓýapp trustees use the loan to purchase more policies, and make partial surrenders each year to pay off part of the loan.

This arrangement is not a gift with reservation for inheritance tax. »Ê¹ÚÌåÓýapp settlor is not a beneficiary of the trust itself and the making of the loan does not constitute a settlement for the purposes of Inheritance Tax. No POA charge arises as the benefit to the settlor arises as a creditor and not under the trust.