Interest in Possession (IIP)

For the general law, see Understanding trusts.

What it is#

A two-stage trust of the whole residuary estate:

• Stage one - the life interest. The surviving spouse (or, on a single will, a person you name) receives the income for life. This is a deliberately fixed, protected arrangement: the trustees can't withhold, redirect, hold back or end the income, and can't move capital away from the life tenant. That protection is what keeps the trust spouse-exempt on the first death and lets stage two use the favourable two-year read-back window.
• Stage two - the remainder. When the life interest ends (on the second death), whatever is left is dealt with by the choice you make below: passed out to the named beneficiaries, or held on a discretionary trust for them.

You can also nominate one home the surviving spouse may live in rent-free during the life interest. This is a right to occupy, not a ringfence - the whole residue stays on the trust either way.

Who it suits#

• Couples who want the survivor looked after for life while making sure the capital ultimately reaches the children - the classic "protect the survivor, preserve the estate" plan.
• Protecting the estate against being spent down, or against a survivor's remarriage, while keeping the residence nil rate band available.

Which will it goes in#

• Mirror wills - as the first-death trust. The life tenant is automatically the surviving spouse; you don't choose them.
• Single wills - as the main trust. There's no spouse, so you must name the life tenant (the person who takes the income for life).

Add it as an order line ("IIP to Discretionary Trust"). It's usually paired with a Discretionary Trust on the second death.

What you'll set on the form#

Trustees and beneficiaries#

Uses the life-interest three-way trustee choice - see the shared settings.

• The remainder beneficiaries are the people who inherit the capital after the life interest ends - not the life tenant, who already receives the income. They take in equal shares; any split you want goes in the Letter of Wishes.
• On a single will only, name the life tenant (the income beneficiary for life).

The life interest (stage one)#

Setting	Choices / range	Default	What it does
A home the spouse may occupy	one property, or none	none	Gives the surviving spouse the right to live in one named home rent-free for the life interest (the trustees can sell it and buy a replacement). Leave blank for no occupation right.
Survivorship period	0–180 days	28 days	How long the life tenant must outlive the client to take the life interest. Capped at about six months so the trust still qualifies for its tax treatment. Set 0 for none.
Allow capital advances to the life tenant	On / off	On	Lets the trustees give capital to the life tenant as well as income. This doesn't affect the trust's qualifying status. Turn off to limit them to income only.

The remainder (stage two)#

Setting	Choices	Default	What it does
How the trust vests when the life interest ends	Vest directly to the beneficiaries · Trustees' discretion · Always retain on a discretionary trust	Trustees' discretion	See below.
Remainder beneficiaries' age at vesting	An age	18	The age a remainder beneficiary takes outright. A beneficiary who doesn't reach it has their share added to the others.
When the trust of the remainder can take effect	Even if the life interest never begins · Only when the life interest ends	Set automatically	See below.

How the remainder vests:

• Vest directly - on the second death the trust ends and the remainder passes outright to the named beneficiaries in equal shares (subject to the vesting age). Simplest and cheapest, but no ongoing protection and it doesn't use the two-year read-back window.
• Trustees' discretion (recommended) - the remainder is held on a discretionary trust and the trustees have two years from the second death to decide who benefits; decisions in that window are read back as if made by the will. If they do nothing, it falls to the beneficiaries equally.
• Always retain on a discretionary trust - the remainder stays on a continuing discretionary trust for the long term. The strongest protection against a beneficiary's divorce, bankruptcy or care fees, at the cost of the trust's own ongoing tax charges.

When the remainder can take effect - this only matters if the life tenant dies before the client (so the life interest never begins). "Only when the life interest ends" is the default on mirror wills, because the second-death half of the will already covers a spouse who dies first. "Even if the life interest never begins" is the default on a single will, because nothing else would deal with the residue in that case. The form pre-selects the right default for you.

Tax options (both on by default)#

Setting	Default	What it does
RNRB section 144 read-back	On	Before the remainder is applied, the trustees set aside a sum equal to the available residence nil rate band for your children or grandchildren, so the estate can claim it.
Taper mitigation (estate over £2m)	On	Lets the executors top up charitable gifts to bring a large estate below the £2 million threshold at which the residence nil rate band tapers away, and files the relevant form.

A life interest in a single property#

To give the survivor the right to live in one home for life while the rest of the estate passes freely, use the "A home the spouse may occupy" option above - the IIP grants a right to occupy one named property without ringfencing anything else. For a single-property arrangement with wider trustee powers, a FLIT is the closest orderable alternative.

Good to know#

• On a mirror will the life tenant is always the surviving spouse - it's set for you.
• On a single will the form won't let you continue until you've named the life tenant.
• Capital advances to the life tenant are allowed by default; only moving capital away from them would break the arrangement, and the trust never does that.
• Remainder splits go in the Letter of Wishes, not the will.