A client of mine wishes to prepare a Will under which the property (which is in her sole name) passes to her children, but with a provision that her partner should be able to live in the property for as long as he wishes. I have advised that it is important that he does not acquire a life interest, otherwise it will amalgamate with his estate on his death for IHT purposes, meaning that it is assessed twice for IHT purposes (once when she dies and again when he dies). If I make a gift to the (minor) children of the residue, with a provision that he should be able to live in the property for as long as he wishes, or unless he marries, does anyone foresee any problems with such a clause and how would this affect her Residential Nil Rate Band (if it does).
Any guidance would be greatly appreciated.
Harold Bell & Co.
Since your client is anxious not to commit to the relationship she has with her boyfriend (or he is reluctant to commit to the relationship he has with her), she cannot be surprised to discover that she may well not be able to have tax advantages that the government have devised for the benefit of those who marry.
As I see it, your proposal results in a life interest, with the result that the children do not inherit directly so the RNRB is lost. I also apprehend that there will be two charges to IHT, once on the property passing to the boyfriend on her death, and again on the termination of the interest in possession. Perhaps the solution is a Discretionary Trust of her whole estate which would carry with it a ten-yearly charge.
Julian Cohen, Solicitor
Would the will still create a life interest despite the fact that there are provisions for ending the partner’s ability to reside in the property if he remarries, fails to pay the bills/maintain the property etc?
Simmonds Hurford Solicitors
A right to occupy is an IPDI for IHT purposes, even tho it falls short of a life interest.
Whilst, technically, there would not be a “life interest”, as the right is determinable during the partner’s lifetime and, therefore, not for life, the IHT consequences of the determinable interest and a life interest are the same.
Perhaps a tenancy at a modest rent to cover insurance, repairs etc might achieve the required result.
Elmhirst Parker LLP
Granting a tenancy, even just to cover “routine” outgoings will result in the trustees being subject to the landlord’s statutory obligations, including matters such as the annual gas safety check, verifying the occupant’s “right to rent”, installation of smoke and carbon monoxide alarms, energy performance certificates, etc., which do not currently apply to the occupation by a beneficiary.
When considering the nature of any right of occupancy that might be granted, this aspect should also be considered.
Whilst these statutory duties are imposed on landlords to help ensure the protection and well-being of rent paying occupants (whatever the level of rent), I believe that a responsible trustee should also consider the adoption of similar standards for property occupied by any beneficiary, so as to help ensure that individual’s safety and well-being (it seems odd that a trustee owes a far greater duty to a stranger than they do to their beneficiaries!)