Residence Nil Rate Band and option

A testator is considering whether to include an option (possibly with a reduction of 10%) for his cohabitee to acquire the property they occupy together. The property is his both legally and beneficially (although subject to a mortgage). The Will is to include an expression of wish that the executors do not proceed with a sale for up to 2 years from the date of death with the cohabitee to occupy on such terms as the executors consider appropriate. The residuary estate is to be left to his children. The availability of the Residence Nil Rate Band (RNRB) is important to mitigate IHT that would otherwise arise. Will including an option impact on the availability of the RNRB or would it be better to stay silent on this subject? The testator would not want to conclude a Will leaving all or part of his estate on trust so as to give flexibility to his trustees to make decisions.

Alison Hill
Ford Simey

If he wants the option to be enforceable he must include it. The wishes as to occupation will not bind his children, and the note of wishes should be addressed to them as well, as it is their decision.

If he wants more protection for occupation, a discretionary trust is the obvious answer, with an appointment to the children within 2 years.

Simon Northcott

The availability of the RNRB requires that the direct descendants inherit the property which occurs only if they become entitled to it on the deceased’s death.

Presumably this will not the the case if the option to purchase is exercised by the co-habitee within the chosen time frame.

If, however, the option is not so exercised what is the position? Does the option constitute a condition precedent and if so on a failure to exercise the option does the property fall into the residuary estate with the residuary beneficiaries then becoming entitled to the property on the deceased’s death?

Or is the option a contingent gift and failure to satisfy the contingency results in the same consequences as just mentioned above?

I am ignoring IHTA 1984 s144.

Malcolm Finney