How is a right of occupation limited to 2 years after the death of the testator treated for tax purposes?

Trusts Discussion
1

If a Will grants a right of occupation to the (unmarried) partner of the testator, and the RofO is limited to 2 years (less one day) from the date of death, how would the RofO be treated for tax purposes? Would it be classed as an IPDI? Or does section 144 IHTA prevent this? What would be the implications if the partner died within the RofO period?

The Will does not grant the partner the right to receive income.

1 Like
2

I don’t think s.144 applies as the right of occupation is an interest in possession and s.144(1) and (3) only apply to “an event” which occurs before an immediate post-death interest has arisen.

3

I agree. Also s142(4) doesn’t take effect either because the provision is in the will. So, yes, I think this is an IPDI.

Unless anyone can see anything clever that I’m missing, I see two tax events in your facts:

  • the death itself (which is not spouse exempt because there is an unmarried partner) also
  • the subsequent termination of the right of residence which is either a PET or a chargeable lifetime transfer depending up what happens to the property next.

If the partner dies the property would aggregate with their tax estate.

There might be scope for variation?

1 Like