Jurisdiction(s):
United Kingdom

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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...

IHT on release of IIP to remainderman and gift of 50% share

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Q&As

It has been assumed that:

A’s entitlement under the trust to a 50% interest in the property constitutes a qualifying Interest in possession (QIIP)
A’s trust interest is not within section 5(1B) of the Inheritance tax Act 1984 (IHTA 1984)
Releasing A’s interest in possession will bring the trust to an end
B is not a settlor of the trust

The cessation of the QIIP, together with A’s gift of the remaining 50% share, each amounts to a potentially exempt transfer (PET) by A. These transfers become chargeable to IHT if A were to die within seven years. See Practice Note: Qualifying interest in possession trusts—IHT treatment, especially the section ‘Ending of an interest in possession during Beneficiary’s lifetime’. Taper relief, as well as A’s available nil rate band, may operate to lessen any IHT payable...

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Web page updated on 27/05/2026

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