"Present Use and Enjoyment and IHT"


(Gary Taylor) #1

I have a Probate matter where the deceased was named as a Discretionary Beneficiary in an inter vivos Discretionary Trust created in 2003. The deceased was not related to the Settlor and the deceased was not a Trustee of the Discretionary Trust.

The deceased has been allowed to live in a property owned by the Trust entirely at the discretion of the Trustees since 2004. The deceased did not pay any rent but did pay all outgoings relating to the property.

As the deceased was occupying the property at the discretion of the Trustees the deceased would not be considered to have the present use and enjoyment of the property and the property would not form part of the deceased’s estate for IHT purposes. My only concern here is that the deceased has been allowed to live in the property for such a long time -14 years. Does that cause any issue in the deceased’s estate so far as IHT is concerned?

Gary Taylor
Progressive Wills Ltd


(Paul Saunders) #2

Did the trustees resolve to allow the beneficiary into occupation, thereby creating an interest in possession?

If so, did the IIP arise before or after 22 March 2006?

In Judge (PRs of Walden deceased) v. IRC (2005), trustees allowed Mrs Walden to continue to occupy property incorrectly believing she had an IIP. It turned out the trust was a discretionary trust of which Mrs Walden was an object. As the trustees had not appointed a life interest to her, HMRC did not argue that an IIP existed. This resulted in the property not aggregating with her estate on her death, although did mean that main residence relief could not be claimed as the requirements of s.225 TCGA 1992 had not been met.

If the trustees in the matter under consideration have not at any time resolved to appoint an interest in possession to the deceased, it is arguable that the executors can claim no IIP has arisen. However, any potential saving in IHT will need to be balanced against the extent to which CGT will be payable, and the potential for it to create a dispute between the beneficiaries of the deceased’s estate and those entitled to the trust fund.

Paul Saunders


(Gary Taylor) #3

Thank you for your input Paul.
The Trustees have never resolved to appoint an interest in possession to the beneficiary. They simply allowed the beneficiary to occupy the property. The beneficiary occupied the property from 2004 until 2018.

Gary Taylor


(Dale Ross) #4

Just to follow up on this discussion, although the trustees have not formally made a decision to grant, an IIP in the property, is that not de facto the consequence of the events described? In the Walden case mentioned, it appears that the trustees erroneously believed that an IIP existed, and that was the reason for their indecision. In Gary’s case, however, while Paul points out that it is arguable that no IIP has arisen, it will also be arguable that one has arisen.

It is hard to conceive that the trustees have not addressed or considered the point over 14 years, or overlooked that one of the discretionary beneficiaries has been in actual occupation, while making no attempt to secure income for the trust. That could be seen as gross negligence if it were not a deliberate decision just to leave things as they are.

I would be interested in any views for or against this proposition.

Dale Ross
Blackadders LLP