Glossary · UK
What is Interest in Possession Trust?
A trust where a named beneficiary has the immediate right to the trust's income, or to use trust property, as it arises.
Full Definition
An interest in possession (IIP) trust gives a beneficiary - often called the life tenant - the right to receive income from the trust assets, or to occupy or use trust property, for as long as that interest lasts. The capital is usually held for other beneficiaries, the remaindermen, who inherit once the income interest ends. The trustees manage and protect the assets, while the life tenant enjoys the benefit. IIP trusts are common in wills, for example to give a surviving spouse income for life while preserving capital for children. The tax treatment depends on when and how the trust was set up. Trust income is generally taxed, and the life tenant may receive a tax credit reflecting tax already paid by the trustees. For inheritance tax, qualifying interests can be treated as part of the beneficiary's estate, while other IIP trusts fall under the relevant property regime. Because the rules are detailed, professional advice and HMRC guidance are essential.