IHT on death of life tenant under 1981 Will

I am dealing with an intestate estate where the deceased has assets of around £150k. Under her late uncle’s Will (prepared in 1981; he died in 1982) one of his properties passed to his Trustees upon trust for them to permit the said xxx to occupy the same during her lifetime or until she shall no longer use the said premises as her principal place of residence…

The property now has an open market value of between £325k and £450k (there is development potential).

I understand that when a life tenant dies, the value of the property is added to their estate for IHT purposes and that the IHT payable is apportioned between the Trust and her estate.

My concern here is whether the value of the property must be added to the deceased’s estate for IHT or not. Does the wording of the Will - I mean the use of the word “permit” mean that she had a right to occupy the property? I’m probably clutching at straws!

I would appreciate any feedback on this question - thank you .

I have a feeling there was a similar case earlier this year, where the trustees were directed to “allow” a person to occupy a property. If I have recalled correctly, the court ruled that the beneficiary’s right of occupation was subject to the trustees’ discretion and, therefore, was not a qualifying interest in possession for IHT purposes. If my recollection is correct then, on the basis that “allow” and “permit” are pretty much interchangeable I suggest that, initially, the right of occupation would have been subject to the relevant property regime.

However, if, before 22 March 2006, the trustees formally permitted the beneficiary to occupy the property, this could have created an interest in possession that, since that date, will be a qualifying interest in possession and subject to IHT under s.52(1) IHTA 1984 on the death of the “life tenant”.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I would have thought there was a strong case for this to be an interest in possession. The wording appears to require the trustees to permit occupation if she wishes to live there, so no discretion on the part of the trustees.

If it had been may permit, that would be different.

Aggregation with the free estate assumes she was in residence at her death, otherwise there may have been a PET when she ceased occupation.

Simon Northcott

Many precedents over the years for rights of occupation (interests in possession) have directed trustees permit the beneficiary to occupy. I would be surprised if this were construed as anything other than an interest in possession, and if she continued to occupy up until death then the trust will aggregate with the estate for IHT purposes