Readers’ forum: Tax position on indexation increase

Wills containing a nil-rate band trust sometimes provide for the trustees to accept a loan note from the surviving spouse to be repaid increased by indexation.

I have been asked for my opinion on the taxation position on the increase.

I wonder if readers can give me some pointers on the below:

• Is the increase taxed as income taxable in the year the loan is repaid?
• What is the inheritance tax position on the trust?
• Are there any tax consequences if the trustees waive the right to receive this increase?

Taxation readers’ help would be appreciated.

Query 20 427 – Theythinkiknow.

Trustees could capitalise the interest element then shortly after waiving it.

The indexation increase seems to bear more resemblance to accrued loan interest which is income in nature. On this basis if the indexation increase is paid together with the loan principal on the date...