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HMRC internal manual

Inheritance Tax Manual

Annuities: what is an annuity?

An annuity normally takes the form of a fixed amount of income to be paid out of a settled fund. It is usually described as an amount per year (per annum) and hence the name. For example, ‘£400 a year to my friend Freda Smith’. In practice it would be paid monthly or even weekly. The settled fund itself might be very large, producing income far above that required to service the annuity.

The person taking the benefit of the income, known as the annuitant, has an interest in possession in the fund to a specific extent.