Q&As

A deceased's Will created a life interest in their share of a property for their partner, with remainder going to the deceased's child. The property has been sold within two years of death and the life tenant and remainderman have agreed to a split of the proceeds. Would a variation of the Will or a termination (partition) of the trust be the best option, bearing in mind the tax consequences?

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Produced in partnership with Lynne Counsell of 9 Stone Buildings
Published on LexisPSL on 26/04/2021

The following Private Client Q&A produced in partnership with Lynne Counsell of 9 Stone Buildings provides comprehensive and up to date legal information covering:

  • A deceased's Will created a life interest in their share of a property for their partner, with remainder going to the deceased's child. The property has been sold within two years of death and the life tenant and remainderman have agreed to a split of the proceeds. Would a variation of the Will or a termination (partition) of the trust be the best option, bearing in mind the tax consequences?
  • Life interest trusts
  • Partition of a trust
  • Variation of the trust
  • Conclusion

A deceased's Will created a life interest in their share of a property for their partner, with remainder going to the deceased's child. The property has been sold within two years of death and the life tenant and remainderman have agreed to a split of the proceeds. Would a variation of the Will or a termination (partition) of the trust be the best option, bearing in mind the tax consequences?

This Q&A assumes that the child in question is an adult and also, for inheritance tax (IHT) purposes, that the life tenant holds a qualifying interest in possession under the trust.

Life interest trusts

A life interest trust gives the life tenant an interest in trust assets for their lifetime, which is usually the entitlement to receive the income from the assets or to live in a property. Upon that beneficiary’s death, the assets pass to one or more remaindermen. For tax purposes, the life tenant has an interest in possession, namely ‘a present right of present enjoyment in the net income of the Trust property without any further decision of the trustees being required’.

If income is received by the trustees, income tax will be charged at 20%. Income is usually paid directly to the life tenant and would therefore be entered in their tax return.

If there has been a gain in the assets prior to distribution,

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