to the income. Accordingly: On creation: In the rare cases where they can be created in lifetime they are taxed as PETs. They are taxed as part of the death estate, when created by will. A spouse exemption is available where the interest-in-possession beneficiary is a spouse or civil partner of the deceased. On termination (i.e. termination of the interest-in-possession, which may, or may not, be the termination of the trust): The value of the trust's assets is taxed at death rates upon the death of the interest-in-possession beneficiary. It aggregates with that beneficiary's estate, and the trust and the estate share the nil-band between them, in proportion to their values. The value of the trust's assets is taxed as if it were a "PET" where the beneficiary's right to receive income ceases in his or her lifetime. Source: Schedule 20 Finance Act 2006. Law of the United Kingdom Taxation in the United Kingdom Wills and trusts in the United Kingdom