Interest in possession trusts—income tax
Interest in possession trusts—income tax

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Interest in possession trusts—income tax
  • The calculation of taxable income
  • Deductions from taxable income
  • Rates of tax
  • The calculation of income tax

FORTHCOMING CHANGE: As originally announced at Autumn Budget 2017 and followed up by written statement after Spring Statement 2018, plus an announcement in Budget 2018, the government ran a consultation on the taxation of trusts from 7 November 2018 to 28 February 2019, inviting views on the principles of transparency, fairness and simplicity that it believes should underpin the taxation of trusts. In response, in July 2019, the Office of Tax Simplification issued its second report on inheritance tax. See also the report published by the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness in January 2020 recommending the adoption of a new inheritance tax regime. See also the research exploring the use of trusts which was also published on 7 November 2018. See News Analysis: Exploring the consultation and review on the taxation of trusts.

The trustees are together treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time).

An interest in possession (IIP) is characterised by a beneficiary's right to the income of a trust as it arises. The income belongs to the beneficiary and the trustees have no authority to withhold it, except to use it for legitimate expenses.

If trust income does not fall within the definition of accumulated or discretionary income in section 480 of