We have recently taken instructions for new Wills whereby the couple own a property as tenants in common in equal shares. They will to put all their estate into a life interest trust for the spouse and on death of second spouse, the first spouses share passes to children. At the same time, the mother lives with the clients and has invested money into the property. Is it possible to leave the residuary estate in a life interest trust for the spouse along with a right of occupation for the mother to live in the property. If so, what are the tax implications?
If the mother has invested money into the property, does she have a beneficial interest herself? If so, that has its own tax consequences, and she may have a right of occupation under s.12 TLATA1996 already, subject to exclusion and perhaps compensation under s.13. Otherwise, the first to die could leave his or her interest to the mother for life then surviving spouse for life, or to the surviving spouse for life but subject to the mother’s right of occupation, but neither would not guarantee the mother’s occupation under TLATA if the surviving spouse wanted to exclude her. Since both spouses seem like the mother, I’d be tempted just to express a wish in the wills that the survivor allow the mother to continue to occupy the property with him/her.
As for tax, lots to consider: spouse exemption, NRB, TNRB, RNRB, TRNRB… My suggestion of the non-binding wish to allow mother to occupy would I think have advantage of ensuring the surviving spouse is still treated as having an IPDI in the share of the first to die, and not using up anyone’s NRB on the house.
Alexander Learmonth QC
New Square Chambers