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 taxation of trust investment income for discretionary and interest in possession trusts: interest, dividends, accrued income scheme, insurance bonds and estate income; 2024–25 small‑income exemption

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Practice notes

This Practice Note outlines key aspects of the taxation of investment income that apply specifically to discretionary trusts and Interest in possession trusts.

Interest

Since 6 April 2016, interest is generally paid gross, without tax deducted at source. Trustees do not benefit from the savings allowance created by section 4 of the Finance Act 2016, which allows individuals to receive up to £1,000 of gross interest taxed at the nil rate. Accordingly, after the end of deduction at source, trustees may need to file a tax return to settle liabilities arising on very small amounts of interest.

HMRC acknowledged the added administrative and financial burden. As a temporary measure, initially for 2016–2017 only, HMRC confirmed that trustees need not declare or pay tax on interest where savings interest is the sole income and the liability is under £100. This easement was extended to later tax years and remained in place until the 2023–24 tax year. From 2024–25, most trusts (and all death estates) with small amounts of income have been removed from income tax...

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Web page updated on 22/05/2026

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