Usufruct of Jersey house

I have a client who is UK resident and domiciled. He owns a house in Jersey having inherited residence rights. He would like his children to inherit the house and residence rights.
He would also like to mitigate IHT if possible. I am aware of the following principles:-
-Jersey real estate cannot be held in trust
-if my client leaves the house to his wife outright, this will secure IHT spouse exemption . However, if she then gifts the house to the children, they will not secure Jersey residence rights.

I was wondering whether a short term usufruct in favour of the spouse(say 2 years minimum) would give the desired result.
I understand that this would work in Jersey. Once the usufruct in favour of the spouse determined, the children would inherit the house outright and this should secure Jersey residence rights.

Do contributors consider that the usufruct would be treated as an IPDI, securing spouse exemption? I am aware that there would be a PET on the transfer to the children.

Yes the short term usufruct would give the desired result, but you will need that checked by a Jersey advocate or solicitor. The usufruct or usufruit is alive and flourishing in Jersey despite mainland attempts to redefine it.
It will be essential from the legal and the IHT perspective to have the usufruct and the nue-propriété conveyed in front of the Royal Court, so as to be clearly evidenced as an immovable right in rem. I would suggest that the Jersey conveyance actually states that in the conveyance to forestall any move by HMRC Technical to countermand the obvious and attempt to shirk considering the classification rules applicable to what are here foreign immovable rights in rem by missapplying the second paragraph of s. 43(2) ITA 1984. If guidance is needed, please let me know as the correspondence with HMRC that I have had is navigable but only with the right sextant and compass.
There has been some reference in textbooks on Jersey law to a usufruct being in some manner an easement or a servitude. This is not a correct statement of the modern position as the reference made to those concepts is not to the modern ones, but to the old Roman law rights, which have developed over a millennium and half into fully fledged rights in rem, not personal ones, as in France.
No, the Usufruct is not an “interest in possession in settled property” and therefore “relevant property” as there is no settlement. There is no trust, either under Jersey law or under a correct classification procedure under English law and the state of affairs referred to and required in Barclays Wealth does not exist either in Jersey law.
The value of the usufruct by which the donor’s estate would be lessened would benefit from the spouse exemption, but it would obviously be far less that the value that HMRC would seek to apply to it under its favourite and totally unjustifiable fiction. Whilst the French valuation under article 669 CGI by way of comparison by reference to the age of the usufructuary is not directly applicable in Jersey, a Jersey advocate might seek to apply a valuation by reference to a similar principle.

The gift of the usufruct to the spouse and the nue-propriété to the Children would only come into charge if the donor did not survive 7 years, so the issues involved may only at the moment be hypothetical.

However, as there is no “settlement”, fictional or otherwise, there can be no initial, decennal year or exit charge either as there is no interest in possession in settled property and no “relevant property” created.

As the gifts will be carved “carved out” of the chose as legal, not equitable rights they will not fall to be mishandled as GROBs as if read correctly in the light of Ingram s.106 FA still does not apply to carving out or disposing of legal rights (or if you insist on the anglicism legal estates) in land in this case.

Please do not hesitate to contact me for further technical input.

Peter Harris

My only experience of usufruit was over 50 years ago as a junior in the executor and trustee department of one of the banks where the deceased had an interest in one in Brittany Consequently I have forgotten most if not all of what transpired except that I remember it was complicated! My reason for posting this is to express my admiration at the interesting way in which Peter outlines how the matter needs to be approached. Indeed his postings, although usually lengthy, are always a pleasure to read and certainly are educating. It is also reassuring to know that there is someone on the forum to whom one can refer such matters for advice.

Patrick Moroney
BWL solicitors