Widow's Loan Scheme (Assets)

The Widow's Loan Scheme is a term used to describe a specific type of estate planning strategy used in the UK to protect an existing transferrable nil rate band. When someone dies, their estate is subject to inheritance tax (IHT) on the value of their assets above a certain threshold, known as the nil rate band. The current nil rate band in the UK is £325,000. If someone is married or in a civil partnership, any unused portion of their nil rate band can be transferred to their spouse or partner's estate upon their death. This is known as the transferrable nil rate band. The Widow's Loan Scheme is a strategy used to protect the transferrable nil rate band. Here's how it works:

1. The surviving spouse or civil partner takes out a loan for the amount of their unused nil rate band.
2. The loan is then used to purchase an asset, typically an investment bond.
3. The investment bond is then held in trust for the benefit of the surviving spouse or partner.
4. When the surviving spouse or partner dies, the investment bond is paid out to the beneficiaries named in the trust, free from IHT.
5. The loan is then repaid from the deceased's estate.

This strategy effectively allows the unused portion of the deceased's nil rate band to be used to shelter the investment bond from IHT. However, it is important to note that this strategy is not suitable for everyone, and should only be used after careful consideration and professional advice.