Whether an interest in possession exists on the facts of any
given case is a matter for careful analysis and thought. The
question was once sufficiently difficult to concern the House of
Lords in the Pearson case, which is the leading case on the
subject.
Once it is established that an interest in possession exists
in a fund, it is a relatively simple matter to identify what
capital is chargeable and how it becomes so.
IHTA84/S49 (1) provides:
‘a person beneficially entitled to an interest in
possession shall be treated for the purposes of this Act as
beneficially entitled to the property in which the interest
subsists.’
However, where the person becomes beneficially entitled after
22 March 2006 S49(1) applies only if it is an immediate post death
interest, a disabled person’s interest or a transitional
serial interest, IHTA84/S49 (1A).
The effect of IHTA84/S49 is that for all practical IHT
purposes - and especially on valuation matters - the person having
the interest in possession is treated as the absolute owner of the
property.
The fact that the value of the life interest of a 90-year-old
is less than that of a 26-year- old is completely removed and
ignored.
As IHTA84/S49 (1) attaches all of the value to the current
interest in possession, any interests in the future, called
reversionary interests, are usually treated as excluded from an
individual’s estate on death by virtue of IHTA84/S48. (
IHTM16232)
