Tax treatment of interest in possession trusts
- Lifetime – Tax may be due when the trust is created, when assets are added or leave the trust and on each 10th anniversary of the creation of the trust. These rules are known as the relevant property regime. In many cases, however, tax is not payable because of the value within the trust and/or available tax reliefs and exemptions;
- Death – An immediate post death interest is created if the benefit is given to the beneficiary immediately from death in the will. This means that special tax rules will apply to the trust. For example, if a spouse or civil partner is the life tenant then there will be no tax. When the surviving spouse or civil partner dies the value of the property within the trust is treated as forming part of the spouse/civil partner’s estate for inheritance tax purposes. This may or may not result in tax. Specialist advice is recommended to establish whether tax will be an issue and if so, what steps the survivor can take during his or her lifetime in order to mitigate the tax.
For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.