I have a client who solely owns a property which she wishes to pass to her children. The Property exceeds £500k and as such IHT will be due. She also wishes her partner to have the right to reside for two years.
She is due to get married soon and I want to know if she leaves her husband a Right to Occupy which does not include the right to income whether this still acts as an IIP so that the IHT burden falls on him whose estate is worth a lot less and as such won’t cause an IHT bill should she die first.
I can’t see whether the relevance of him receiving the income or not makes a difference as to where it is a qualifying interest in possession?
I believe even if partner does not have the right to income, then a right to occupy will be treated as an IIP for IHT purposes.
That said, if your client is due to get married, then there should be no IHT to pay on her death due to spouse exemption. On second death the allowances can be combined so that up to £1m could pass tax-free (depending on the availability of the RNRB).
I Will Solicitors Ltd
Yes, it will qualify as long as the interest is immediate following death.
Thank you for your reply Ishan.
Her entire estate is passing to her children so I believe this should help use some of his NRB if she gives him the right to occupy. Do you agree?
I don’t think I understand quite what sort of right is envisaged here. If the property is something the husband is going to occupy, how is it also going to produce income?
If there are two parts to the property, one of which produces income and one of which is residential, then it is possible that he would have an IIP over the second part and not the first. If what is meant is that he is entitled to reside there but not to rent it out, then the analysis might be that the IIP would terminate when he left or attempted to let the property, rather than that he didn’t have the right to income during the IIP: but it probably depends on drafting.
Pump Court Tax Chambers
It has the possibility to produce income, although it will not however I think my query related to whether the power for income needed to be included in the Will to ensure that husband Will bear the IHT burden on transfer or death and not my client. I have decided to not include the power and give a simple right to reside which from my understanding of HMRCs IHT manual means that the life tenant upon release of the property will bear the IHT which providing he survives 7 years will be NIL.