- Knowledge Centre
An Interest in Possession Trust is one where the beneficiary of a trust has an immediate and automatic right to the income from the trust as it arises.
The trustee must pass the income, less any expenses, to the beneficiary.
The beneficiary entitled to the income of the trust for life is known as a life tenant or as having a life interest, and a beneficiary who is entitled to the trust capital is known as the capital beneficiary.
The beneficiary who receives income typically doesn’t have any rights over the capital – instead the capital will normally pass to a different beneficiary or beneficiaries in the future – but depending on the terms of the trust, the trustees might have the power to pay capital to a beneficiary even though that beneficiary only has a right to receive income.
Interest in Possession Trusts offer the same IHT benefits as discretionary trusts, but they offer less immediate flexibility on the distribution of trust income.
In comparison with Discretionary Trusts, Interest in Possession Trusts are less suitable for minors, as income must be distributed to beneficiaries.