Interest in possession beneficiaries

Produced by a Tolley Trusts and Inheritance Tax expert

Trusts and Inheritance Tax

Guidance

This note deals with the main principles of income tax that apply to beneficiaries of an interest in possession trust.

An individual will be charged to income tax only where he is entitled to, or receives, income from a taxable source. For a beneficiary of an interest in possession trust, you need to ask: what is the source of the trust income to which he is entitled?

The source of a beneficiary’s income

The source of the income of a beneficiary of an interest in possession trust (constituted under the law of England and Wales) is the trust property itself, and not the right that is enforceable against the trustees to have the trust properly administered.

A beneficiary is specifically entitled to the trust income that has not been used to defray the trustees’ management expenses. In other words he is entitled to the net income arising from the trust property.

In Scots law, the beneficiary of any trust has only a personal right against the trustees to have the trust properly

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