Variation of rights of residence clause in will

Deceased’s partner has been left a right of residence in deceased’s property (in sole name of deceased). They had both lived in the property for 20 years prior to his death.

Consideration is being given to vary the will so that the property is left to the deceased’s 3 children (in order to claim RNRB relief now and so that there isn’t a second charge to IHT when the partner dies due to aggregation of value of property with partner’s estate).

If the partner continues to live in the property without paying rent to the children following the variation, would HMRC deem this to be extra consideration and the variation void for IHT purposes?

If the partner continues to live the property and pays a full market rent, would this have any negative impact on the partner for income tax purposes?

IHTM para 35100 provides “IHTA84/S142(1) does not apply to a variation or disclaimer if it is made to any extent for a consideration in money or money’s worth not provided out of the death estate”.

If the surviving spouse executes a DoV under which his interest is redirected to the children who then effectively inherit the whole property the surviving spouse has then no legal right to continue to reside in the property. However, whether the children simply let him continue to live there or formalise such an arrangement it’s difficult to see how this would constitute “external consideration”.

IHT on the deceased’s estate will increase if the DoV is executed probably even with the availability a RNRB/TRNRB.

The case of Lau [2009] maybe worth a read although in that case IHT would have been greatly reduced under the DoV (not the case here).

Malcolm Finney

Malcolm Finney

Thanks Malcolm - the IHT on the deceased’s estate will not increase as the survivor is not a spouse, so no spouse exemption, but it will mean the estate can claim the RNRB allowance, which currently they cannot do.