Right of Occupation or IIP

Trusts Discussion
1

Hi All

Property owned 2/3 by mum, 1/3 by child 1 (unmarried with no children)

Mum makes a Will in 1992 leaving child 1 a right of occupation. Mum dies in 2002. The clause states:

I DIRECT that the freehold property at xxxxxxxx which I hold jointly with my said daughter CHILD 1 as tenants in common together with all my furniture and household effects therein shall not be sold during the lifetime of my said daughter without her consent in writing and that until the sale thereof my Trustees shall permit my said daughter to occupy the same rent free so long as she shall desire

There are no gift over provisions, so on sale of property, mums share falls into her residue which passes to all 3 children in equal shares.

I am inclined to think that the lack of any gift over, along with the lack of any defined trust period, that the clause does not create any interest in possession.

All 3 children now wish to gift their shares to the children of Child 2 and 3. Child 1 would be making a GWROB so no point.

Questions:

1. Is there an IIP?

2. If no IIP, child 2 and 3 should be free to gift their shares to their children to start 7 years clock ticking. As they don’t live in the property there couldn’t be any GWROB

3.If there is an IIP, if trust ended, child 1 would be deemed to be making a PET, and so GWROB rules still apply as she continues to occupy the property. However, if child 2 and child 3 on the termination of the trust, decide to gift their shares of the property to their children, would it be correct to say that for IHT purposes they haven’t made a PET if they died within 7 years because the gift did not reduce the value of their estate.

Thanks in advance

Sally-Ann

2

From IHT16062:

The main authority for the definition of an interest in possession is the House of Lords case Pearson v IRC: a person has an interest in possession when they have ‘a present right of present enjoyment’ or an immediate right to the income or enjoyment of property (irrespective of whether the property produces income).

I would struggle to argue that the definition doesn’t apply to this situation.

If children 2 and 3 gifted their interests in the residue prior to a sale, that might be considered a revisionary interest (s.47) and so excluded property (and not a transfer of value) under s.48.