Remainder interest Definition

GLOSSARY

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What does Remainder interest mean?

An interest in a trust (or under the terms of a Will), where the beneficiary’s (remainderman’s) possession and enjoyment of the trust property is postponed by a prior interest in the same property.

View the related practice notes about Remainder interest

Taxation of trusts—restructuring trusts

Taxation of trusts—restructuring trusts Reasons for restructuring a trust Restructuring a trust may be undertaken for a number of purposes, including to: • create an interest in possession for one or more beneficiaries • restrict the class of beneficiaries • create specific trusts for specific beneficiaries or for a class of beneficiaries • create a sub-fund or sub-funds • appoint a different set of trustees over a part of the trust fund • expand the administrative powers held by the trustees A trust may be restructured by one or more of the following methods: • an exercise of a statutory power or of an express power contained in the trust deed or instrument • an application to court for a variation of the terms of the trust • a disposition or disclaimer by a beneficiary of a vested or contingent interest Exercise of a power This is likely to be the simplest and most effective method of restructuring the trust because it can be achieved (if the terms...

Income tax—pre-owned assets

Income tax—pre-owned assets The pre-owned asset tax (POAT) is an inheritance tax (IHT) anti-avoidance measure, introduced by Schedule 15 to the Finance Act 2004 (FA 2004), and implemented with the intention of penalising the users of IHT avoidance schemes, although its scope extends beyond such schemes. The POAT charge is a freestanding annual charge to income tax on certain individuals, known as 'chargeable persons', with respect to benefits they receive as a former owner of property or of property derived from it. The benefit may take the form of the occupation of land, the use or possession of chattels or the ability to receive income or capital from a settlor-interested trust holding intangible property. The legislation can prove somewhat ambiguous. However, since the purpose of FA 2004, Sch 15 is to counter arrangements whereby the taxpayer enjoys assets which are no longer in their estate for IHT purposes, points of ambiguity should be construed with that purpose in mind. Background Before 17 March 1986, it was possible to...

Discover our 7 Practice Notes on Remainder interest

Where a 50% beneficial interest in a residential property was left on discretionary Will trust and within two years was appointed to the surviving spouse for life, but with no provision made as to the remainder interest, what happens on the surviving spouse’s death? In particular, is the residence nil rate band and transferable residence nil rate band available on the surviving spouse's death?

Where a 50% beneficial interest in a residential property was left on discretionary Will trust and within two years was appointed to the surviving spouse for life, but with no provision made as to the remainder interest, what happens on the surviving spouse’s death? In particular, is the residence nil rate band and transferable residence nil rate band available on the surviving spouse's death? We have assumed that • the surviving spouse’s own 50% beneficial interest in the property passes by their own Will to their children or other lineal descendants • the residence nil rate band (RNRB) was not used on the first spouse’s death, such that a full 100% RNRB was available to be transferred to the surviving spouse’s estate on their death • neither estate exceeds the £2m taper threshold for the purposes of claiming the RNRB The destination of the trust assets (ie the first spouse’s 50% beneficial interest in the property) following the cessation of the surviving spouse’s life interest (due to...

If: (a) a Will creates a life interest trust with the remainder interest contingent on the remainder beneficiary surviving the life tenant, (b) the remainder beneficiary predeceases the life tenant, (c) there is no substitute remainder and (d) there is a gift of residue, would the remainder interest pass under the gift of residue or under the intestacy rules?

If: (a) a Will creates a life interest trust with the remainder interest contingent on the remainder beneficiary surviving the life tenant, (b) the remainder beneficiary predeceases the life tenant, (c) there is no substitute remainder and (d) there is a gift of residue, would the remainder interest pass under the gift of residue or under the intestacy rules? In summary, the remainder interest falls into residue and will pass to the beneficiary of the residue, subject to what is stated below. The gift to the trustees under the Will is a form of specific legacy and it is assumed that the gift was fully constituted, thereby creating a valid trust. The contingency attached to the gift of the remainder interest does not affect the initial validity of the trust. As the remainder beneficiary has failed to survive the life tenant (so the interest never vested in them) and there is no substitute beneficiary of the remainder interest, there is, in effect, a subsequent lapse of...

See the 20 Q&As about Remainder interest

Private Client weekly highlights—10 August 2023

This week’s edition of Private Client highlights includes: (1) Perry v Lopag Trust & another (No2) (Cayman Islands) interplay between finding of fact and foreign law; (2) DBT updates guidance on registration and verification of overseas entities; (3) testamentary capacity and undue influence turned on whether a pain medication had been taken on the day of execution; (4) DWP response and a further consultation on deferred small pension pots; (5) Bermuda considers introduction of corporate income tax; (6) undue influence found by testatrix’s daughter on re-hearing ordered by the Court of Appeal.

Question of the week: What are the tax implications of an assignment by remainder beneficiaries of their entitlement under a Will trust, more than two years after the testator’s death?

This Q&A considers the tax implications of an assignment by remainder beneficiaries of their entitlement under a Will trust, more than two years after the testator's death

Read the latest 7 News articles on Remainder interest

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GLOSSARY