Right of occupation for 1 week -IPDI? Spouse exempt?

I have a client aged 82. Her husband is 85. Wife thinks she may pass away first.

Wife and husband have just separated and don’t expect to reconcile (very serious issues despite age which go beyond this question) although they expect not to divorce prior to death.

Wife has assets in her sole name of 1,025,000 including the former matrimonial home (£700k), another property (£300k) and a ‘cash’ estate of £25k. Husband has in his sole name a house worth £300k in which he now resides and no cash estate.

Owing to their separation Wife recently made a new will leaving everything to her daughters and wasn’t concerned about the IHT consequences.

One daughter now tells her she should leave dad a life interest in the matrimonial home (£700,000) to atleast save tax.

The other daughter lives in the matrimonial home. She and dad have serious issues such that they could never live together and so I’m not sure this is the answer!

I have been working out different options for wife all of which have resulted in IHT at some point even if only on second death owing to the value of their combined estate.

It has, however just crossed my mind as to whether wife could leave her husband a right to occupy the matrimonial home for say 1 week resulting in no IHT payable upon her death (spouse exempt)? All other assets passing to daughters currently within her NRB.

Hopefully the husband wouldn’t move in for a week and cause any problems. Assuming husband survives the week am I also correct in thinking that the value of the matrimonial home wouldn’t aggregate in his estate as he would not have any interest in the property upon his death- so no IHT on his death either?

Seems too good to be true. I guess not many spouses would agree to this so may not come up very often. Or I’m wrong- cringe.

Looking forward to your comments.

Siân Maund
Wace Morgan Solicitors

The termination of the IPDI would be a PET and father would need to
survive 7 years for it to drop out of his cumulation.

I wonder If HMRC would question the granting of such a short lived IPDI,
mindful that in all probability it will have expired before the
beneficiary was likely to become aware of it.

The inclusion of such a short lived IPDI could create more issues than
it was hoped to resolve or avoid.

Paul Saunders

I believe this would work. I raised a similar question, but that would have been via a Deed of Variation and so a 2 year limit applies under s142(4) IHTA. I do not think there is a similar limit for Spouse Exemption to apply as long as the spouse is “immediately” entitled on death, then I believe it could even be for a day. Obviously, there will then be a PET from the husband to the daughter. Be interested to hear others’ comments.

Kamlesh Samji
KRS Estate Planning

The question of ‘when is an interest in possession not an interest in possession’ comes up from time to time and in summary I take the view that it should last for at least six months to be ‘safe’ from attack on the basis described by Paul S. I have however been in a situation when the boot was on the other foot, and I put it to HMRC that an interest in possession in a property that lasted only for a few days was not, in fact, an interest in possession, but I didn’t get very far with that argument. One should expect that what is sauce for the goose is sauce for the gander.

Paul Davies

I am not sure on what basis it could be attacked, as I believe GAAR does not apply to Wills. However I would be uncomfortable and would prefer a revocable life interest-although as Paul says there is no iht saving
unless H survives more than 7 years after the determination of the life interest.

It will certainly not help family relations to use up all of H’s NRB in this way, although perhaps he will leave all to his daughters, but may not.

Simon Northcott

Surely, if there was intended to be a minimum period, this would have bene included in the legislation like it has been in s142(4).

I agree, it won’t help family relations in this original posters case, but if everyone is singing from the same hymn sheet, then there is some planning - especially for unmarried couples where RNRB would not otherwise be available.

Kamlesh Samji
KRS Estate Planning

I’d be very very interested in potential planning, especially for unmarried couples where RNRB is desired, but I can’t see for looking how this would work.

Julian Cohen

Simons Rodkin

I have a fairly unique situation where they were unmarried but living together as a married couple. The children are HIS children, not hers, but she has treated them as hers and has no children of her own. indeed, her will leaves her estate to HIS children. Currently, there is a IHT liability of about £36,000 as everything passes to her absolutely. With the usual caveats and risks explained, the client is considering varying to pass a share of the residence to HIS children to benefit from RNRB. I have highlighted the risks of joint ownership with non residents, including the risks from divorce, bankruptcy of the children. And also the potential CGT implications. But they wanted to consider the options. On the whole it may not be beneficial, but the option is there for them to consider.

Kamlesh Samji
KRS Estate Planning