In Margaret Vincent v HMRC [2019] TC7432, the First Tier Tribunal found that a valid interest in possession had been created in a family home so it had to be included in the beneficiary’s death estate.
Where there is a trust with an interest in possession (IIP), or life interest, a single beneficiary has:
- A right to the income of the trust property and to use that property including residing there.
- If the individual dies holding the IIP, the value of this forms part of their death estate.
On their retirement a couple purchased a property with the wife’s brother for them all to live in.
- They executed a declaration of trust that the property was to be held as to 5/8 for the brother and 3/8 as joint tenants by the husband and wife.
- The couple put in place mirror wills which meant when the second spouse died, the brother could continue to live in the property rent-free for “as long as he shall desire” and so long as he paid the bills and maintained the property. The remainder of the estate was to go to their daughter, Mrs Vincent.
- The brother had a similar will. He left his estate to his sister or brother-in-law if the sister died first and then to Mrs Vincent.
- The husband died first. On the wife’s death, the solicitor tried to vest the 3/8 share of the home in Mrs Vincent by amending the legal title with the land registry.
- The brother lived in the house until his death 12 years later, though he did spend extended periods abroad during which time the daughter would stay at the property for up to 2 nights a month. He continued to pay the bills and insure and maintain the property.
- On the brother's death the IHT returns were submitted excluding the 3/8 value of the property.
- HMRC assessed the full value of the house to IHT with no discount for shared ownership.
- Mrs Vincent appealed saying there had never been any intention to confer an interest in possession on her uncle. He simply had permission to live there and the wills of her parents needed to be interpreted flexibly. She further said that if there was such an interest her uncle had disclaimed it.
The FTT agreed there was an interest in possession which must be included in the brother’s estate on his death:
- As a tenant in common, owning 5/8 of the property, the brother had a right to enjoy the entire property without payment anyway, but clearly this was not felt to be sufficient protection hence the provision in the wills.
- The words used in the wills made it clear the brother was to be allowed to live at the property for the remainder of his life and no flexible interpretation was required. The intention was to protect his interest from “what ifs” rather than leave it to the discretion of either the trustees or Mrs Vincent.
- Mrs Vincent may have been registered at the land registry as the owner of 3/8 of the legal title but this did not mean she was the beneficial owner of 3/8 of the property.
- There was no evidence of any disclaimer of the gift by Mrs Vincent’s uncle.
Mrs Vincent also challenged the inclusion of 100% of the value of the property. This was on the grounds she had a legitimate expectation that a discount would be applied because HMRC’s guidance said:
“For property or land shared with others …You can then take 10% off the share of the person who died” and, at TSEM9120, “that the legal owners of a property are those persons whose names are registered in the Land Registry” and that applied to herself and her uncle. The tribunal confirmed that it did not have the jurisdiction to determine this as it was a judicial review point, nor was it able to rectify a will.
Links to our guides:
IHT: estate planning checklist
Joint property: legal v beneficial ownership
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