Tenancy and Residence Nil Rate band

Trusts Discussion
1

I act for A. A cohabits with B in his house- B also owns a house which is let. They both have children by their previous marriages and do not wish to marry.

A wants B to be able to occupy the house for a period of two years from his death.

Any provision made by will is likely to take effect as an IPDI and create inheritance tax problems for one estate or the other for up to seven years after it ends; neither is of an age at which life assurance is easily obtainable.

I have been considering an arrangement where A during his life grants a tenancy of the house to himself and B for thirty months, the intention being that it would be renewed by way of an endorsement for a further thirty months every six months or so, so there would always be a minimum two years unexpired.

My question is : will A’s estate be able to claim RNRB and the transferable RNRB from his late wife?

Section 8H(2) IHTA defines the qualifying residential interest as “an interest in a dwelling-house which has been [A’s] residence at a time when [A’s] estate included that, or any other, interest in the dwelling-house”

Sec 8H(3) says " where [A’s] estate immediately before [A’s] death includes residential property interests in just one dwelling-house, [A’s] interests in that dwelling-house are a qualifying residential interest in relation to[A]"

The plural ‘interests’ in subsection (3) suggest to me that both the leasehold and the reversionary interest belonging to A both qualify.

Do other members agree?

Tim Gibbons
Gibbons Solicitors Limited

2

How do B and the children of A get on?

My understanding is that the form of tenancy suggested would become a
statutory periodic tenancy, which can be terminated on 2 months notice.

Might an alternative be to create a 2 year, less a few days,
discretionary trust of the property, with the default gift to the
children, and B within the class of beneficiaries. Provided the
executors/trustees do not exercise their discretion to cause any
interest in possession to arise (or to extend the trust period) they
should be able to rely upon the decision in the Judge case, so that
s.144 IHTA will apply when the default gift kicks in.

The letter of wishes can provide that B should not be required to vacate
the property until they have had a reasonable time to put their affairs
in order (with a suggested period of, say, 20 months).

Paul Saunders