Significance of a qualifying interest in possession

Where a beneficiary’s entitlement to trust property satisfies the definition of a qualifying interest in possession (QIIP), the trust property falls into their estate for inheritance tax purposes. See the Taxation of trusts ― introduction guidance note.

The inheritance tax treatment of trusts falls into two broad categories:

1. •

   beneficial entitlement (bare trusts and qualifying interests in possession) where the assets are taxed in the estate of the life tenant on death, and

2. •

   relevant property (non-qualifying interests in possession and discretionary trusts) which are subject to the relevant property IHT regime

Prior to 22 March 2006, all interest in possession trusts fell into the first category, but changes