I am unclear whether the RNRB can be claimed in an estate where the deceased’s residence passes immediately to lineal descendants but subject to a right of residence for five years to the cohabitee of the deceased. What is the authority for the answer? I haven’t been able to find the answer on HMRC’s website. Thanks for any assistance.
Hazel Jones
Pictons Solicitors LLP
I would say no - at least the children are not considered to have inherited the property.
s.8J(3)(a) IHTA - [B does not inherit] if the property becomes comprised in a settlement on D’s death.
Settlements are only eligible if B has the IIP, is a bereaved minor or is beneficiary under an 18-25 Trust. The intervening right of residence would prevent any of these applying.
HMRC would regard the right of residence as an IIP but in any case the arrangement appears to meet the definition of settlement under s.43.
Andrew Goodman
Osborne Clarke LLP
IHTA 1984 s.8J is relevant.
None of the lineal descendants “inherit” within the section [s8J(2) does not apply as on death a settlement is created (s8J(3)(a)) but none of the conditions of s8J(4) is satisfied].
Malcolm Finney
The answer may well lay in whether HMRC still accepts the court’s decision in Evans v. Lloyds Private Bank. I cannot locate reference to the case (I hope it is referred to in Dymonds), but recall the court held that no IIP arose where property was given to, say, the children with a request that they allow the widow to reside in the property.
If Evans is still good law, the devise can be drafted along the same lines - as an absolute gift to the children I would expect it to qualify for RNRB.
Long term, though, would the immediate IHT benefits be negated by any potential CGT liability and, possibly even, the 3% SDLT charge on any future purchase of property by the children, whether for their own home or otherwise?
Paul Saunders
IRC v Lloyds Private Banking [1998] STC 559
Julian Cohen, Solicitor
The main problem is that Lightman J did not agree with the decision. HMRC successfully appealed.
Andrew Goodman
Osborne Clarke
Many thanks to Julian and Andrew for correctly identifying the case I had in mind, and that the decision to which I had referred was reversed on appeal.
Whilst it is not the Lloyds Private Banking case that supports the point I was making, I recall a case in which property was given absolutely to the testator’s children with a wish/request that they allow the testator’s widow rent-free occupation. The court concluded that no interest in possession was created and that it was for the absolute beneficiaries - the children - to decide if they might grant the widow a licence to occupy – she had no right of occupation under the will.
Although I wondered if the Special Commissioners’ decision in Judge (personal representatives of Walden) v. IRC [2005] might include reference to the case in question, having read the judgment I note Dr Brice makes no reference to it. His observations, though, could be taken to support such a view.
I currently do not have access to Dymond’s Capital Taxes, but believe that, if my recollection is correct, Dymond’s will reference the situation and case in question.
Paul Saunders
I’m afraid I don’t know the case but it makes sense - if the widow does not have an actual right to occupy (whether directly or indirectly as a result of administrative restrictions) and can only live in the property while the children allow it then she does not have an IIP.
Andrew Goodman
Osborne Clarke LLP