Life interest trusts in wills: the home and a second family

What a life interest trust is

A life interest trust, which the tax legislation calls an interest in possession trust, splits the benefit of an asset in time. One person has the right to the income from it, or the use of it, for their lifetime. When they die, the asset passes to the people the will named to receive it. The first person never owns the asset outright, and the second group does not receive it until the first has died.

In a will it is normally written around the residue of the estate, or around the deceased's share of the family home. The will appoints trustees, who hold the asset; gives the life tenant the income or the right to live in the property; and names the remaindermen who take the capital afterwards. Our guide to trusts explained covers the general vocabulary. This guide is about this one type, in a will, and the choices that go into it.

The life tenant and the remaindermen

The life tenant is the person with the interest in possession. Where the trust is over investments, they receive the income as it arises, and the trustees have no discretion to withhold it. Where it is over a house, they have the right to live in it. They do not own the capital and cannot leave it by their own will; their interest simply ends on their death.

The remaindermen are the people who take the capital when the life interest ends. In a second marriage will they are usually the children of the person who made the will, from the first relationship. Their interest exists from the first death, and it is fixed by the will, so the life tenant cannot change it.

The trustees sit between the two. They owe duties to both the life tenant and the remaindermen, which means holding the balance between income now and capital later, and the choice of trustees matters more here than in most wills. A trust in which the surviving spouse is the sole trustee and the children are the remaindermen puts one side of the balance in charge of it.

When it is the right tool

The most common use is a second marriage or a long relationship where either partner has children from an earlier one. An outright gift to the survivor gives them the freedom to leave everything to their own children, or to a new partner, and the first family is left with nothing. The problem and the reasons it arises are set out in mirror wills and second marriages. The life interest trust is the answer: the survivor has the home and the income for life, and the capital goes where the will directs when they die.

The second use is protecting a share of the home where the couple own it as tenants in common. Each leaves their half on a life interest to the other, so the survivor stays in the house for life and each half ends up with the children. That structure also has an effect on care fees, which is dealt with below.

The third is a survivor who could not manage a capital sum, or who might be vulnerable to pressure from a new partner or a family member. The trustees hold the capital and the survivor has the income, which is harder to lose.

The inheritance tax treatment

Two provisions of the Inheritance Tax Act 1984 do the work, and together they make the life interest trust one of the few trusts that carries no tax penalty.

On the first death, where the life tenant is the deceased's spouse or civil partner, the gift into the trust is exempt under section 18. Section 49(1) of the Act treats a person with an interest in possession as beneficially entitled to the property in which it subsists, and section 49(1A) confines that treatment, for interests arising on or after 22 March 2006, to certain qualifying interests. One of those is the immediate post-death interest, and it is the category a will trust for a spouse falls into. Section 49A defines an immediate post-death interest as one under a settlement effected by will or on intestacy, to which the beneficiary became entitled on the death, and which is neither a bereaved minor's trust nor a disabled person's interest. A life interest for a spouse under a will meets those conditions, so the spouse is treated as owning the trust fund and the spouse exemption applies as if it had been left to them outright.

On the life tenant's death, the same section 49 treatment means the trust fund is aggregated with the life tenant's own estate for inheritance tax. The tax is calculated on the combined figure, the trust bears its share, and the trustees pay it from the trust fund before the remaindermen receive the capital. The first spouse's unused nil rate band transfers to the survivor in the ordinary way, so the two allowances are still available on the second death, and the residence nil rate band is available where the home passes to direct descendants at that point. Our guide to inheritance tax thresholds has the current figures.

The trust is outside the relevant property regime that applies to discretionary trusts, so there are no ten-year or exit charges while the life interest continues. That comparison is drawn out in discretionary trusts in wills.

The home and the right to occupy

Where the asset is the home, or the deceased's share of it, the will gives the life tenant the right to occupy it for life, or until they choose to leave, remarry, or move into care, depending on the drafting. The trustees hold the legal title jointly with the survivor where the survivor owns the other half.

The will should say who pays for what. The usual position is that the life tenant pays the outgoings, the insurance and the ordinary repairs, and the trustees, from the trust's capital, pay for structural work. Where the survivor cannot afford the upkeep, the trustees need a power to help from capital or the arrangement breaks down.

The will should also say whether the house can be sold and another bought. Most do, with the trustees required to buy a replacement the life tenant chooses, and to hold any surplus proceeds on the same trusts, with the income to the life tenant. Without that power the survivor is tied to one house for life, which is rarely what anybody intended.

Where the house is sold and not replaced, the trust becomes a trust of money, and the life tenant receives the income from it. An interest in possession trust pays income tax at the basic rates, and gov.uk's current figures are 20 per cent on most income and 10.75 per cent on dividends, with the life tenant then accounting for any higher rate on their own return.

What the trustees can do

The trustees' core duty is to hold the asset and pay the income or allow the occupation. Beyond that, the will decides what they can do, and three powers are usual.

A power to advance capital to the life tenant lets the trustees help the survivor with a large expense, such as care costs or a house adaptation, at the cost of reducing what the remaindermen eventually receive. Some wills give it freely, some limit it, and some withhold it where the aim is to lock the capital for the children.

A power to advance capital to the remaindermen during the life tenant's life lets the trustees, with the life tenant's consent, pass part of the fund to the children early. That is useful where a child needs a deposit and the survivor is content, and it has tax consequences, since the life tenant is treated as making a gift of the amount advanced.

A power to terminate the life interest in whole or part lets the trustees bring the trust to an end early, which is discussed below. Where the trustees include the life tenant, the will should say whether they can exercise these powers in their own favour, and it is usually better that at least one independent trustee is required.

Care fees

Where the survivor later needs residential care, the local authority's financial assessment looks at what the survivor owns. A life tenant does not own the trust capital, and a right to occupy a house is treated differently from ownership of it, so a share of the home that has been left on a life interest trust for the survivor is outside the survivor's assets in a way that a share left outright would not be. The income the survivor receives from the trust is counted as their income.

That effect follows from the structure and it is the reason the tenants in common arrangement is so widely used. It applies where the trust was made for the ordinary reasons, in a will, on the first death. The deliberate deprivation rules, the capital limits and the way the home is assessed are set out in care home fees and your home, and anybody choosing a life interest trust mainly for this reason should read that guide first.

Ending the trust early

A life interest can end before the life tenant's death in three ways. The life tenant can surrender it, giving up the income or the right to occupy so that the capital passes to the remaindermen now. The trustees can exercise a power in the will to terminate it. Or the will can provide that it ends on an event, such as remarriage or moving into care.

Each has tax consequences. When a life interest treated under section 49 ends during the life tenant's lifetime, the life tenant is treated as making a transfer of the trust fund. Where the capital goes to the remaindermen outright, that is a potentially exempt transfer and falls out of account if the life tenant survives seven years. Where it goes into a further trust, an immediate charge can arise. Ending the trust to give a child capital early is often sensible and needs the arithmetic done first.

All the beneficiaries together, if adult and of full capacity, can also agree to bring the trust to an end and divide the fund between them, since between them they own the whole beneficial interest.

The drafting choices

The will has to decide several things, and each of them is a decision for the person making the will. Whether the life interest ends on remarriage or cohabitation, which protects the children and can leave a survivor in their seventies with a hard decision. Whether the survivor can be given capital, and how much, and by whom. Whether the house can be sold and replaced, and whether the trustees can buy a more expensive one. Who the trustees are, and whether the survivor is one of them. Whether the remaindermen's shares are fixed at the first death or can be adjusted by the trustees later. And what happens if a remainderman dies before the life tenant, which is common where the survivor is young.

A will that leaves those questions unanswered is a will that will be argued about, usually between the survivor and the children, at the point when the relationship between them is most strained. The AD Wills service covers this structure, and the wills page explains how it is drafted and what it costs.

Frequently asked questions

What is a life interest trust in a will?

It is a trust under which one person, the life tenant, has the income from an asset or the right to live in a property for their lifetime, and the asset then passes to the remaindermen named in the will. The life tenant never owns the capital and cannot leave it by their own will. It is the standard structure for a second marriage, where the survivor needs the home and the income and the children of the first relationship need to know the capital will reach them.

Is there inheritance tax when I leave my estate on a life interest to my spouse?

No on the first death, where the life tenant is your spouse or civil partner. Section 49A of the Inheritance Tax Act 1984 makes a life interest under a will an immediate post-death interest, section 49 treats the spouse as owning the trust fund, and the spouse exemption in section 18 then applies as if you had left it outright. On the spouse's death the trust fund is added to their estate, with both nil rate bands available, and the trust pays its share of the tax.

Can the surviving spouse sell the house?

Only if the will lets the trustees do so, which most wills of this kind do. The usual provision requires the trustees to sell if the life tenant asks and to buy a replacement the life tenant chooses, holding any surplus on the same trusts with the income to the life tenant. A will without that power ties the survivor to one house for life. The will should also say who pays the outgoings and repairs, and whether the trustees can help from capital.

Does a life interest trust protect the house from care fees?

In part. A life tenant does not own the trust capital, so a share of the home held on a life interest trust for the survivor is treated differently in the local authority's assessment from a share the survivor owns outright, while the income from the trust is counted. That follows from the structure and is the reason the tenants in common arrangement is common. The capital limits, the disregards and the deprivation rules are set out in our care home fees guide.

Can a life interest trust be ended early?

Yes. The life tenant can surrender their interest, the trustees can end it if the will gives them the power, or the will can provide that it ends on remarriage or a move into care. When it ends in the life tenant's lifetime the life tenant is treated as making a transfer of the fund, which is a potentially exempt transfer if the capital goes to the remaindermen outright and can carry an immediate charge if it goes into another trust, so the tax should be worked out first.

Who should be the trustees?

People who can hold the balance between the survivor, who wants income and security now, and the children, who want the capital preserved. A trust in which the survivor is the sole trustee puts one side in charge, and a trust run only by the children can leave the survivor asking for permission to live in their own home. A common answer is the survivor and one independent trustee, with the will requiring both to act, so nobody can exercise the powers alone.

Sources & further reading

• Inheritance Tax Act 1984, section 49
• Inheritance Tax Act 1984, section 49A
• Inheritance Tax Act 1984, section 18
• GOV.UK: trusts and Inheritance Tax
• GOV.UK: trusts and Income Tax
• GOV.UK: Inheritance Tax

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).