Mark McLaughlin looks at interests in possession and outlines their significance for inheritance tax purposes.
Many taxpayers are unfamiliar with the term ‘interest in possession’ (IIP). However, the existence of an IIP has various tax implications; this article focuses on inheritance tax (IHT) implications.
IIPs and IHT
The IHT treatment of an IIP mainly depends on whether it is ‘new’ (i.e., created from 22 March 2006) or ‘old’ (i.e., created before 22 March 2006). For example:
- An individual beneficiary of a ‘new’ IIP is not normally treated as owning the underlying asset. Thus, the value of the interest does not generally form part of the beneficiary’s estate (NB there are exceptions for ‘special’ IIPs, such as an ‘immediate post-death interest’, a ‘disabled person
