Interest in possession beneficiaries (life tenants)—income tax
Produced in partnership with Jordan Ellis of Trowers & Hamlins
Practice notesInterest in possession beneficiaries (life tenants)—income tax
Produced in partnership with Jordan Ellis of Trowers & Hamlins
Practice notes
FORTHCOMING CHANGE: On 17 October 2022, the government announced at Autumn Statement 2022 that the dividend allowance would be reduced from £2000 to £1000 from 6 April 2023 and then to £500 from 6 April 2024 and the income tax additional rate threshold would be reduced from £150,000 to £125140 from 6 April 2023 See : .
Broadly speaking, a life tenant is entitled to receive the income from an interest in possession (IIP) trust and that income will be taxed at the life tenant's marginal rates. This is the case both when the trustees first receive the income and then pay it to the life tenant and when the trustees have ‘mandated’ the income to the life tenant so that the life tenant receives it directly. Although the overall income tax treatment is the same, the process for declaring the income and paying any tax due on it differs.
The source of the beneficiary's income
The source of the income of a life tenant of an IIP trust is the trust
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Interest in possession definition
What does Interest in possession mean?
For trust law purposes, where a beneficiary has a current fixed entitlement to an ascertainable part of the net income or net capital (if any) or the use and enjoyment of trust property. For tax purposes, the term interest in possession has not been defined by legislation but its meaning was confirmed as a ‘present right to present enjoyment’ in the House of Lords case of Pearson v IRC. Also called a life interest trust.
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