Tax on surrendering a life interest in a trust

KEY POINTS

• The inheritance tax position at the end of a life interest during the beneficiary’s life will depend on several factors.
• Regardless of how the life interest is brought to an end the inheritance tax position will be the same.
• Tax implications will depend on whether there is a qualifying interest in possession.
• If the trust contains a qualifying interest in possession the trust assets form part of the life tenant’s estate.
• If there is no qualifying interest in possession the trust assets will be relevant property.
• Under the relevant property regime a trust could be liable for inheritance tax entry exit and ten-year anniversary charges.

Acolleague recently asked me: ‘If my client’s life interest in a trust is surrendered by...