Significance of a qualifying interest in possession
Where a beneficiary's entitlement to trust property satisfies the definition of a qualifying interest in possession, (QIIP) the trust property falls into the beneficial entitlement regime for inheritance tax purposes. See Taxation of trusts - introduction
The inheritance tax treatment of trusts falls into two broad categories:
- Beneficial entitlement (bare trusts and qualifying interests in possession), and
- Relevant property (non-qualifying interests in possession and discretionary trusts).
Prior to 22 March 2006, all interest in possession trusts were included in the beneficial entitlement category, but changes introduced by FA 2006 (subscription sensitive) transferred most lifetime interest in possession trusts into the relevant property category. Hence the beneficial entitlement treatment only applies to qualifying interests in possession. See the March 2006 changes to trust taxation guidance note.