Example 1—discretionary annuity
An annuitant is entitled to £1,000 pa out of the income of a specified fund. It is a qualifying interest in possession (QIIP). The trustees have a discretion to pay up to the whole of the remainder of the income of the fund to the annuitant in any year. There is power to accumulate the surplus income not so applied to provide a fund out of which to satisfy the annuity in years when the income is deficient. If the income and accumulated income is insufficient to pay the £1,000 in any one year it is to be made up to £1,000 out of capital.
So long as the income of the fund (and of any accumulations) is less than £1,000 the annuitant has a QIIP in the whole fund (and any accumulations from previous years). There will be no transfer of value on making up the annuity to £1,000 out of capital in a year
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