Qualifying interest in possession trusts ― IHT treatment

Produced by Tolley
Qualifying interest in possession trusts ― IHT treatment

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Qualifying interest in possession trusts ― IHT treatment
  • Death of the beneficiary with the qualifying interest in possession
  • Calculation of inheritance tax
  • Practical points
  • Ending of an interest in possession during beneficiary’s lifetime
  • Exempt termination of a QIIP
  • Potentially exempt termination of a QIIP
  • Chargeable termination of a QIIP
  • Reservation of benefit in a QIIP
  • Calculation of inheritance tax on lifetime termination of QIIP
  • More...

Trust property, which is the subject of a qualifying interest in possession (QIIP), may become chargeable to inheritance tax on the following occasions:

  1. on the death of the beneficiary with the interest in possession

  2. on the death of the beneficiary within seven years after a transfer or lifetime termination of his interest

  3. on the transfer or conversion of the interest to a non-qualifying or discretionary interest

Property in which a QIIP subsists is not relevant property so it is not subject to principal and exit charges during the life of the trust. See the Relevant property guidance note, and other notes in the 'relevant property' sub-topic for details of the relevant property tax regime.

Death of the beneficiary with the qualifying interest in possession

When the beneficiary with the QIIP dies, the trust property will be valued and counted as part of the deceased estate, and the inheritance tax estate charge will be levied on that property (in addition to any other property that is in his estate). In valuing the trust property, the related property rules will apply.

Once the inheritance tax estate charge has been calculated, the trustees of the interest in possession trust will be responsible for paying that part of the tax that relates to the settled property (with the personal representatives being primarily responsible for paying the balance).

By contrast, a reversionary interest in settled property subject to a qualifying interest in possession is not included in the estate of the remainderman on death.

Calculation of inheritance tax

To calculate the inheritance tax on a QIIP trust:

  1. value the assets which are the subject of the interest in possession at market value. Apply the same rules as for the valuation of estate assets. See the Valuation of property guidance note

    Details on obtaining information are given in the Valuing the estate guidance note. As indicated there, information on values can be provided by third parties such as banks, investment managers and estate agents according to

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