What happens to a trust when a life tenant dies?

On their death the trust fund is passed to the other named beneficiaries, known as the ‘residuary beneficiaries’. If there is a property held in the trust the life tenant is entitled to either receive the rental income from it or to live in the property if they wish.

Is CGT payable on the death of a life tenant?

As such, there are no CGT implications on the trust assets on the death of the life tenant (and equally there will be no uplift to market value at that time).

Is an interest in possession trust a life interest trust?

From an Income Tax perspective, an interest in possession trust is one where the beneficiary of a trust has an immediate and automatic right to the income from the trust as it arises. A beneficiary who is entitled to the income of the trust for life is known as a ‘life tenant’ or as ‘having a life interest’.

Does trust interest in possession?

What is an interest in possession trust? Interest in possession (IIP) trusts give a named beneficiary (or beneficiaries) the right to any trust income. This beneficiary is often referred to as the life tenant of the trust (or life renter in Scotland).

How does an interest in possession trust work?

An interest in possession trust is a trust in which at least one beneficiary has the right to receive the income generated by the trust (if trust funds are invested) or the right to enjoy the trust assets for the present time in another way. Such a beneficiary is also known as an income beneficiary or life tenant.

Do I need to register an interest in possession trust?

Trusts that hold property will, like other trusts, only need to be registered if the trustees incur a liability to tax. The exception will be where the trust is an interest in possession trust where all the trust income is mandated directly to the beneficiary.

Does trust interest in possession IHT?

Interest in possession trusts created before 22 March 2006 will benefit from a tax free uplift on the death of the life tenant. This is because the trust is subject to IHT in their estate. In other words, any gains up to death are wiped out and the acquisition cost is reset to the asset value at death.

Is an interest in possession trust a CLT?

Interest in Possession Trusts grant a beneficiary or class of beneficiaries a right to receive income from the trust property. A transfer of property into the Interest in Possession trust is deemed to be a “Chargeable Lifetime Transfer” (CLT) for Inheritance Tax (IHT) purposes. …

What type of trust is an interest in possession trust?

What happens when a life tenant with a qualifying interest dies?

Because a life tenant with a qualifying interest in possession is treated as being beneficially entitled to the property ‘in which the interest subsists’ (section 49 (1)), its termination results in a loss to the life tenant’s inheritance tax estate and is a transfer of value (section 52).

How is an interest in possession trust different from a trust?

An interest in possession trust is different from a discretionary trust because the trustees do not have control over how the assets are distributed. However, for trust inheritance tax, life interest trusts are treated like discretionary trusts.

What is a qualifying interest in possession?

A qualifying interest in possession means that for inheritance tax purposes, the trust property is treated as though it belongs to the life tenant. Therefore they are not taxed according to the relevant property regime, i.e. as though they are discretionary trusts.

What is a life interest trust in property?

LIFE INTEREST TRUSTS. What is a life interest trust? A life interest trust (also known as “an interest in possession trust”) is an arrangement recognised by English law under which someone is given the right to use an asset (usually a house) for the rest of their life without ever becoming the owner of the underlying capital.