What is a flexible interest in possession trust?

A Flexible Life Interest Trust provide the trustees with the power to pay trust income, and often trust capital to the Life Tenant. Where the life interest in the trust begins immediately after the death of the person creating the trust then it is called an Immediate Post-Death Interest in possession trust (IPDI).

What is a flit in a will?

What is a FLIT? A Flexible Life Interest Trust can allow a person to benefit immediately upon the death of a testator (Immediate Post Death Interest Trust), all whilst protecting the value of assets for others. This type of trust operates in a very similar way to a discretionary trust.

What is a flexible lifetime trust?

What are they? A Life Interest Trust arises when a beneficiary is left a lifetime interest in relation to assets contained in an estate. A Flexible Life Interest Trust provide the trustees with the power to pay trust income, and often trust capital to the Life Tenant.

What is the difference between a discretionary trust and a flexible trust?

A flexible trust has two types of beneficiaries. The default beneficiaries are entitled to any income that may arise in the future. The discretionary beneficiaries are a group of people who may benefit from the trust, but only if the trustees choose to make an appointment to them.

Can a life tenant be a trustee?

The Life Tenant can be a trustee, but should not be given power to act as a sole trustee. If required, the Settlor can act as a trustee.

How are interest in possession trusts taxed?

Capital Gains Tax on an interest in possession trust Trustees are liable to Capital Gains Tax on any chargeable gains above an amount set each year called the ‘annual exempt amount’. Beneficiaries are not taxed on any trust gains and do not get credit for tax paid by the trustees.

Is a life interest trust the same as an interest in possession trust?

A life interest trust (also known as “an interest in possession trust”) is an arrangement recognised by English law under which someone is given the right to use an asset (usually a house) for the rest of their life without ever becoming the owner of the underlying capital.

What is the difference between a flexible trust and a discretionary trust?

Who pays tax on an interest in possession trust?

Where trustees do not pay the beneficiaries directly, income tax is payable at the basic rate. Dividend income is charged at 7.5%, all other income is charged at 20%. The life tenant is entitled to the income after tax, and are charged at their own rate, considering their basic rate and personal allowance.

Do I need to register an interest in possession trust?

Trusts that hold property will, like other trusts, only need to be registered if the trustees incur a liability to tax. The exception will be where the trust is an interest in possession trust where all the trust income is mandated directly to the beneficiary.

Does trust interest in possession?

From an Income Tax perspective, an interest in possession trust is one where the beneficiary of a trust has an immediate and automatic right to the income from the trust as it arises. On his death Stanley’s Will creates a trust and all the shares he owned are to be held in that trust.

What makes a flexible life interest trust flexible?

The FLIT is flexible because it allows the Trustees of the Flexible Life Interest trust created by the Last Will of the first to die to advance capital as well as income to the survivor, if required. Income includes the right to live in the family home, should it be in the trust.

What is the IHT treatment of a pre-2006 life interest?

I have a pre-2006 lifetime life interest settlement where the settlor settled assets upon himself. Inheritance tax saving was never one of the purposes of the trust.

When did IHT change to interest in possession trust?

These are usually referred to as life interest trusts (or life rent in Scotland). Prior to the IHT changes to trusts on 22 March 2006, it was common practice to use a form of IIP trust with life policies, including investment bonds.

Who is a beneficiary of a flit Trust?

A FLIT arises when a beneficiary, normally a surviving spouse, is given a life interest in the assets contained in the estate. The trustees have the power to pay income and often capital to the life tenant.