Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Interest in possession definition

What does Interest in possession mean? In practice, an interest in possession is a beneficiary’s present right to receive an identifiable share of trust income as it arises, or to use and enjoy trust property (for example, occupation of a house), for the duration of that interest. It contrasts with a discretionary interest, where enjoyment depends on trustees’ decisions. For UK tax and trust law, the expression is not defined exhaustively in legislation; its accepted meaning is the present right to present enjoyment, confirmed by the House of Lords in Pearson v IRC. It is a key concept for the inheritance tax, income...

UK income tax treatment of interest in possession trusts: computation, rates (including trust rates), allowable deductions, and the 2024–25 de minimis income rule

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Practice notes

General principles

The trustees are, for tax purposes, regarded collectively as a single person, distinct from the individuals who serve as trustees from time to time. An Interest in possession (IIP) means a Beneficiary has an immediate right to the trust income as it arises. That income belongs to the beneficiary, and the trustees lack Authority to retain it, save to meet proper expenses. Where trust income does not fall within the definition of accumulated or discretionary income in section 480 of the Income Tax Act 2007 (ITA 2007), it is treated as the income of ‘other persons’ and taxed at the basic and dividend rates. Ultimately, the income is assessed on the beneficiary at their personal rates, irrespective of when, and even whether, it is actually paid to them. Nevertheless, the trustees are liable to income tax on income arising from trust property because they are the legal owners of that property and thus the persons who receive the income. The way IIP and discretionary trusts are differentiated for income tax is not the same as the distinction that applies for Inheritance tax (IHT) purposes under the applicable rules. They therefore do not align in practice...

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Web page updated on 22/05/2026

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