With a single-settlor loan trust any outstanding loan forms part of the settlor’s estate for IHT purposes. The amount in excess of the outstanding loan is not within the estate and is held for the beneficiaries of the trust.
Where the trust has been set up on a joint settlor basis the loan will normally pass by survivorship on death of the first settlor. The surviving settlor will have access to the full loan amount. Where the settlors were married or in a civil partnership the transfer of the deceased settlor’s share of the loan is covered by the inter-spouse exemption.