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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 the beneficial entitlement regime 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), and

2. •

   relevant property (non-qualifying interests in possession and discretionary trusts)

Prior to 22 March 2006, all interest in possession trusts were included in the beneficial entitlement category, but changes introduced by FA 2006 transferred most lifetime interest in possession trusts into the relevant property category. Hence the beneficial entitlement treatment only applies to qualifying interests in possession. See the March 2006 changes to trust taxation guidance note.

IHT consequences of beneficial entitlement

The term beneficial entitlement refers to the inheritance tax treatment under IHTA 1984, s 49, which provides that a person beneficially entitled to a (qualifying) interest in possession in settled property