The following Private Client guidance note Produced in partnership with Jordan Ellis of Trowers & Hamlins LLP provides comprehensive and up to date legal information covering:
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 income of a life tenant of an IIP trust is the trust property itself, rather than the right that is enforceable against the trustees to have the trust properly administered. Therefore, the life tenant's sources of income for income tax purposes will match the underlying investments made by the trust.
The life tenant is specifically entitled to the trust income that has not been used to pay any trust management expenses. In other words, they are entitled to the net income arising from the trust property. For more information on trust management expenses, see Interest in possession beneficiaries (life tenants)—income tax below and Practice Note: Trust expenses.
As the life tenant is entitled
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