Qualifying Interests In Possession: Restating The Problem (Video)

Is it possible to taint an interest in possession, thereby losing its transitional protection under the Finance Act 2006 and triggering adverse inheritance tax consequences? Can this be done by merely restating the interest without a change of beneficiary? This article explores these questions in light of the recent case of Ware v. Ware [2021] EWHC 694 (Ch).

A. Summary of the statutory regime

Where assets are held subject to a trust, the starting point in determining whether inheritance tax ("IHT") is payable is to ask whether at least one beneficiary has a qualifying interest in possession ("QIIP") in the settled property. If there is at least one such beneficiary then the property settled under the trust in which the beneficiary has a QIIP will at least generally be treated for IHT purposes as forming part of that beneficiary's estate, to be taxed upon their death or on termination of their interest during their lifetime.