interest in possession trusts

Interest–in-possession trusts and Capital Gains Tax

With many people now remarrying for the second or even third time, cases can arise whereby only one spouse owns the property in which they now live as a married couple.
 
In this instance, the owner will want to ensure that should they die, the remaining spouse will be able to continue living in the property, rent-free. One way of doing this is to set up an interest-in-possession trust.
 
This type of trust simply gives the surviving partner the right to use the property for the remainder of their lifetime, with other individuals (usually children), given absolute entitlement to the property on the death of the remaining partner.
 
The trust comes to an end when the final beneficiaries inherit the property. Capital Gains Trust rules state that there will be no CGT to pay in the event of the death of the life tenant, whilst the beneficiaries continue to own the property, which is another great reason to set up one of these trusts.
 
Of course, when the time comes to sell, CGT will become due if the property is not the main residence of the ultimate beneficiary. This is normally calculated by taking into account the amount received for the property (or sometimes its market value at the time of the last spouse’s death) against how much was spent to improve and/or sell it, arriving at a sum of money gained or lost. Any relevant tax reliefs are then applied, before being able to calculate the final figure due.

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