Availability of RNRB - unmarried couple and right to occupy

Trusts Discussion
1

Hello

I am hoping that someone on here can clarify a point for me and give me chapter and verse.

The facts are as follows:

Deceased died in October 2025.

His Will gives his partner (cohabitee) a right to occupy his home (held in his sole name) . The right to occupy is limited to five years after which the property passes to his two adult sons in equal shares. The residue also passes to his two sons in equal shares.

My understanding is that the Residence Nil Rate Band is not available as the property is not passing directly to lineal descendants as the gift of the home to the two sons is subject to the right to occupy. However two of my colleagues believe it is available.

Am I right or are my colleagues right?

Regardless of who is right, will it make a difference if the Will is varied so that it gives the cohabitee a right to occupy for life or until she permanently vacates the property which is as I understand it the intention. The deceased intended changing his Will before his death but unfortunately died before doing so.

If the Will is varied, is it more beneficial to the sons for it to be a right to occupy or a full life interest or does it not really matter.

My understanding is that

  1. if it is right to occupy which continues until death or a full life interest , the full value of the property will be aggregated with the value of the cohabitees estate at the date of her death for inheritance tax purposes

  2. If it is a right to occupy which ends prior to death because for example, the cohabitee moves into a care home, the right to occupy will become a PET on the cohabitees part and the value of the property will only fall outside the value of her estate if she survives for seven years. Bearing in mind the fact that the property is worth in excess of ÂŁ325,000, what if any impact would that have on her nil rate band upon her death.

Thank you in advance for any input anyone can provide in relation to this.

Kind regards

Sarah

2

A co-habitant is not a “lineal descendant”” so the QRI is not closely inherited: s.8K IHTA. This means a child or grandchild etc. There is no definition in IHTA or IA 1978 so the term has its meaning as ordinary English words. HMRC agree: IHTM46013.

A right of occupation created by a Will trust is in principle an IPDI so the consequences which outline on its termination during lifetime or on death are just as you predict.

There may be a serious detriment to the co-habitant’s own potential beneficiaries: from aggregation with the free estate on death or loss of NRB if a PET fails.

The only mitigation would be to consider insurance held on trust for those who will lose out. And half a loaf is better than none if cost is an issue.

As the deceased’s estate will be fully chargeable whatever about the precise configuration of the interests of the 3 individuals a s.142 variation will not save IHT but could save tax on a later charegeable event. The Will dispositions could be varied by excising the ROO and conferring on her a fixed term tenancy at a nominal rent (but not a lease for life which is a settlement).

2 downsides are:
1 CGT
The reversion to the tenancy owned by the sons will not be eligible for PPRR.
2 Renter’s rights
I do not profess to be an expert on residential tenancies but the sons will not want the tenancy to confer security of tenure beyond mutual expectations. I am aware of the SDLT unintended consequences of the Comrades’ new Act but have not addressed its impact on this point.

Jack Harper

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