What is an interest in possession trust?

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If you are considering setting up a trust, there are various types of trust to choose from. In the case of an interest in possession trust, the beneficiary has right to receive the income from the trust at any time they choose, without having a right to assets themselves.

So what is an interest in possession trust, and when might you choose to use one?

What is an interest in possession trust?

An Interest in Possession Trust is one which grants the beneficiary (the person who benefits from the trust) an immediate and automatic right to receive income from the trust. As with other trusts, there are trustees assigned to manage the trust on behalf of the beneficiary, so that the beneficiary does not have legal control over the assets. However, unlike in a discretionary trust, the trustees of an interest in possession trust are obliged to pay out all income immediately to the beneficiary, aside from any trust expenses that they need to deduct.

There are two different types of beneficiary in an Interest in Possession trust:

1. The “life tenant” or “income beneficiary”

This is the beneficiary who has a right to the income or enjoyment of the trust throughout their lifetime, or until certain conditions, set out by the creator of the trust, are met. In some cases the benefit of the trust may not be financial – for example, it may be the right to continue living in a house for the rest of their life. However, whilst income beneficiaries are entitled to the benefits of the trust, they have no rights to the capital or assets themselves. There can be more than one income beneficiary, but all of the income during the lifetime tenancy is paid to the income beneficiaries alone, excluding any other beneficiaries (i.e. capital beneficiaries).

2. The “remainderman” or “capital beneficiary”

The second beneficiary is the one who will eventually receive the asset or capital in the trust, once the “interest in possession” has ended. They have no rights to any of the income from the trust until after the “interest in possession” has concluded.

For example:

Simon is married to Emily, but has two daughters from a previous marriage.

In his will, he establishes a trust fund containing all of his shares.

Emily is the life tenant of the trust, so she will receive all dividends from the shares during her lifetime.

After Emily’s death, the trust ends and ownership of the shares will pass to Simon’s daughters, who are the capital beneficiaries

Why use an interest in possession trust?

There are many reasons why you may choose to set up a trust, and interest in possession trusts offer some flexibility in how you pass on your estate.

In particular, interest in possession trusts are helpful for those who wish their children to inherit their estate, but want to allow their spouse or civil partner to continue living in the family home until they pass. The children still inherit the property through the trust, but not until after the death of the surviving spouse.

What are the tax implications of an interest in possession trust?

It is the responsibility of the trustees to declare and pay any Income Tax annually through a Trust and Estate Tax return. That said, trustees sometimes “mandate” income to the beneficiary, meaning income goes directly to the beneficiary rather than via the trustees. In this case, the beneficiary must include it on their own self-assessment tax return. The income tax rates for interest in possession trusts are as follows[1]:

Dividend-type income = 7.5%

All other income = 20%

Capital Gains Tax is due on any profits made through a sale or transfer of assets – such as shares, possessions or property – when those assets have increased in value. It is only paid on any gain over the trust’s Annual Exempt Amount. However, Capital Gains Tax is not payable when assets are passed to the remainderman at the end of the “interest in possession”.[2] The beneficiaries of an interest in possession trust are not taxed on the trust gains.

It is worth noting that, depending on the date at which assets were transferred into the trust, inheritance tax may be payable. This could be charged when assets are transferred into the trust, when the trust reaches its 10 year anniversary, or when the assets are distributed from the trust.

The contents of this article do not constitute legal advice and are provided for general information purposes only.

The Legal Stop offers online legal documents and fixed fee legal services. We believe that legal services should be accessible and transparent, and we aim to provide relevant, practical solutions for businesses of all sizes.

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[1] https://www.gov.uk/trusts-taxes/trusts-and-income-tax

[2] https://www.gov.uk/trusts-taxes/trusts-and-capital-gains-tax

Social Media Influencer Blogger/Vlogger Agreement: what you need to know

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Influencers now play a key role in most social media marketing strategies. Consumers increasingly look to influencers to guide their purchasing decisions and shape lifestyle choices, a trend that has been accelerated during the pandemic.

Influencers now play a key role in most social media marketing strategies. Consumers increasingly look to influencers to guide their purchasing decisions and shape lifestyle choices, a trend that has been accelerated during the pandemic.

Whether you have used influencers before or are considering it for the first time, you’ll need to decide on the details of your arrangement with them. Influencer marketing is known to generate a good ROI, with costs potentially being very low. But as with any business relationship, for things to run smoothly, it’s advisable to have a written agreement in place from the outset.

What is an influencer?

An influencer – also known as a brand ambassador – is someone who is paid to promote your products through their personal social media pages.

Influencers are celebrities of the digital age. They are generally bloggers or vloggers who have established a strong base of followers on their chosen platform, having built up credibility and trust among a particular audience. They may focus on fashion, make-up, fitness, gaming etc., and will promote products or services within this field of interest to their followers.

Why do you need a social media influencer agreement?

Since these individuals will be representing your brand in their social posts, you want to ensure that your business interests are protected and that you are getting the type of exposure that you’re looking for.

Many brands have learned the hard way, with influencers not posting what or when the brand expected them to, or demanding more for their services than was initially agreed.

Whenever you are engaging the services of a new social media influencer, it pays to have all the details clarified in advance through a social media influencer blogger/vlogger agreement. This way, all parties know exactly what is expected of them, and you can enjoy a successful campaign from start to finish.

What should you include in your Social media influencer contract?

Outline of the services required

Firstly, you’ll need to be explicit about exactly what services you are paying for. Some influencer contracts are for one of content, whilst others are long term campaigns. You will also want avoid the influencer posting any content that could damage your brand image.

Be specific about:

  • How many posts you want the influencer to create, how often, and for how long.
  • The exact dates and times you need them to post.
  • Which social media platforms they must post on.
  • Any specific details you expect them to mention in the post.
  • Anything that should not be mentioned or that you don’t want your brand associated with.
  • Hashtags that you want included in each post.

Intellectual property rights

You’ll need to agree who owns the intellectual property (IP) rights of any content the influencer creates. Typically, a photo or video is automatically owned by the person who creates it. This would give your vlogger/blogger exclusive rights over any content they create for you, unless otherwise stated.  

Therefore, you will probably want the influencer to either:

a) transfer the IP rights to you, or

b) grant you a license to use their content for your own purposes – for example sharing their photo or video on your website or in any newsletters.

If you chose to ask them to transfer IP rights to you, you will need to then grant the influencer a license to use the content themselves on their social platforms.

Payment terms

Remuneration of influencers can take various forms, including financial compensation, free products, discounts, or other perks. Be clear of the type of remuneration and any payment terms in your agreement, so the influencer is aware in advance of exactly what payment – or payment in kind – they will receive for their content creation.

Confidentiality

There may be times that you need to share confidential information with your influencers – for example, about the launch of a new product. Having a clause in your influencer agreement will ensure that they are duty-bound to keep this information confidential until you are ready to announce it publically.

Exclusivity

Are you happy for your influencer to promote other brands at the same time as promoting yours? For one-off content this may not be a consideration, but for longer campaigns, you’ll probably want to negotiate exclusivity rights to avoid the influencer promoting any of your competitors within the same time period. You will need to agree the exact time frame for the exclusivity period, which will probably cover the length of the campaign and sometime after.

Working with social media influencers

Having a healthy relationship with your brand ambassadors will lead to better results and reduced risks. It may be easy to just see this as a casual arrangement, but having an agreement in place is just as relevant for influencers as for any of your other business partnerships. The more work you do with influencers, the clearer an idea you will have of what you expect from them, and what you are willing to offer in return.

The contents of this article do not constitute legal advice and are provided for general information purposes only.

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