Reversionary interest definition

/rɪˈvəːʃənəri/ /ˈɪnt(ə)rɪst/

What does Reversionary interest mean?

The strict trust law interpretation of a reversionary interest is one which returns (or ‘reverts’) back to the settlor of a trust after some prior interest. In broader terms, particularly in a tax context, a reversionary interest is an umbrella term for all remainder interests – a future interest under a trust that has not yet fallen into possession. This will be because some earlier interest, such as a life interest, takes priority. 

In practical terms, the remainder beneficiary (often called the ‘remainderman’) has a future interest under the trust but cannot yet receive any benefit. The interest can be vested (there is a definite future legal entitlement) or contingent on an event (commonly the attainment of a certain age). An example of such an arrangement is a life interest trust in a Will giving the income to A for life, and then to B absolutely. B has a remainder interest but will usually receive nothing until A has died. 
Reversionary interests are specifically defined in the IHT legislation to include all future interests. They are usually excluded property and therefore outside the scope of IHT. In most cases, therefore, the gift of a remainder interest will not give rise to any IHT (or CGT) consequences. 

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