interest in possession

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Despite its crucial importance for inheritance tax, statute does not define an interest in possession. Viscount Dilhorne described it as “A present right of present enjoyment” (Pearson v IRC [1980] STC 318 (HL) 326b). When an individual has an interest in possession over trust property, any charge to inheritance tax is computed by bringing into that person's estate the full capital value of the property over which he has an interest in possession (Inheritance Tax Act 1984 s 49). A lease for life is treated as an interest in possession (s 43(3). Trusts are often categorized as falling into one of three categories: bare trust, discretionary trust, and interest in possession trust. Although this threefold division lacks precision and fails to recognize the importance of all the individual terms of a trust, the categorization of certain settlements as “interest in possession trusts” can be a useful starting point. Broadly, such a trust is one in which the beneficiaries are entitled to the income generated by the trust assets for a fixed period or until death.

Subjects: Law.

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