IHTM20511 - Original scheme: How the original scheme typically worked

In the original scheme the steps taken would often be along the following lines

• The transferor would effect a single premium policy and put it into settlement for the benefit of others. The premium would be quite small and usually covered by the annual exemptions. So there was no claim at that stage.
• The transferor would then lend the trustees a much larger sum - say £50,000 - interest free. However, as this loan was repayable on demand there was no reduction in the value of the transferor's estate and no transfer of value.
• The trustees would then invest the loan monies in more insurance policies for the benefit of the settlement beneficiaries.
• Over time the value of the policies would grow. By the time of the death of the transferor they might be worth say £100,000 but the maximum value to be included in his estate would be £50,000 - the value of the loan.
• But it was unusual for the full amount of the loan to be still owing at the transferor's death. In practice the trustees would make partial surrenders of the policies each year and use the proceeds to pay off a part of the debt.