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HMRC internal manual

Inheritance Tax Manual

Rights of residence: more than one beneficiary

If the settlor (or testator) owns the entire property and gives it to trustees for more (or potentially more) than one beneficiary, there should be no more difficulties than appear when the settlor gives the property to a single beneficiary (as at IHTM16135), save that, as in many other areas of life, the more persons taking part in the story, the more story lines there might be.

Woodhall v IRC [2000] STC (SCD) 558 featured more than one beneficiary and is an interesting example of a ‘family’ case.

By his will, George G Woodhall appointed his sons to be his executors and trustees. In his will he provided that no sale of the family home was to take place while his daughter Annie and the two sons, Alan and Eric, desired to reside there. Until sale, ‘the trustees shall permit the said three children or each of them to occupy the property on paying outgoings, insurance and ten shillings per week by way of rent’.

George died on 18 December 1957. Eric left the house in 1957, probably before his father’s death. Annie resided there until her marriage in 1958. She died in 1971.

Alan continued to live in the house until his death on 21 April 1997, leaving only Eric surviving.

None of the children paid the ten shillings rent and nothing was made of this point at the hearing.

On Alan’s death in 1997 the Capital Taxes Office (now IHT) claimed inheritance tax under IHTA84/S4 and IHTA84/S49 (1) on the whole property.

The Special Commissioner held -

  1. the will provides that the trustees ‘shall permit’…(it) contains no express provision for the trustees to choose between competing interests so as to give exclusive occupation to one of the three;
  2. the will does not give the trustees a dispositive power to decide who should occupy the house alone if more than one wished to do so [it had been argued for the taxpayer that the will created a discretionary trust over the property];
  3. applying Pearson v IRC [1981] AC 753, at Alan’s date of death, both he and Eric had the right to claim to occupy the house jointly with the other. The fact that Eric did not exercise his right does not affect the fact that he had it……he was entitled to reside in the house jointly with Alan;
  4. The right [of Alan and Eric] was not a right to ask the trustees to consider whether they would permit occupation. The trustees had no discretion as either or both of Alan and Eric were entitled to occupy the house;
  5. At Alan’s death, both had the present right of present enjoyment of the house and so they each had an interest in possession.
  6. Decision - the inheritance tax claim was valid as to Alan’s one half share of the property only.

Situations you might meet:

  • Has someone actually taken up the right of occupation in whole or part? (IHTM16137)
  • Has someone ceased to occupy his or her main residence and, if so, was this to be tested by intention or by physical fact? (IHTM16138)