A recent English court case has highlighted the importance of accuracy when drafting a Will. The case explored the interpretation of a Will and whether or not an interest in possession, or liferent, in a property had been established by its wording.
In the case of Margaret Vincent v HMRC (2019 UKFTT 0657 TC) the appellant's parents, Mary and Derek Hadden, and uncle, Ian Thom ("the Parties") purchased a property together in 1985 for them all to live in. At the point of purchase, a declaration of Trust between the Parties was established declaring that Ian Thom would hold a five-eighths share of the property, as tenant in common, with Mr and Mrs Hadden being entitled to the remaining three eighths between them.
Immediately after the purchase of the property, Mr and Mrs Hadden executed mirror Wills directing their executors that, on the death of the surviving spouse, Mr Thom would be permitted to reside in the property "for so long as he shall desire free of rent but he being responsible for general rates, water rates, insurance and maintenance repairs of an income nature." On the death of Mr Thom, the mirror Wills confirmed the remainder of the estate was to pass to the appellant.
As Mr Hadden passed away first, title to the property was amended to the effect that three-eighths of the property vested in Mrs Hadden, as surviving spouse. Mrs Hadden was the next to pass away. On the death of Mr Thom, the solicitors acting in the administration of the estate submitted IHT forms including a five-eighths share in the property. However, HMRC disagreed and argued that the whole value of the property should be included as a valid interest in possession had been established by the wording in Mrs Hadden's Will. As a result of this development, Mrs Vincent appealed on the basis that her parents had never had the intention of conferring an interest in possession to Mr Thom.
The First-Tier Tax Tribunal found that a valid interest in possession, or liferent, had been established despite the appellant's argument that her parents' intention was simply to allow Mr Thom to continue residing there following their deaths. Accordingly, it was held that Mr Thom died holding an interest in possession and therefore the value of the possession (i.e. Mr and Mrs Hadden's three eighths plus his five-eighths of the property) formed part of his estate for Inheritance Tax purposes.
The judgment in this case stresses the importance of ensuring that the intention of the testator is reflected in what is stated in their Will. In Vincent v HMRC, it may well have been the case that Mr and Mrs Hadden had no intention of bequeathing an interest in possession in the property they latterly resided in to Mr Thom. It is not unforeseeable that their intention was merely to direct their executors to the existence of the shared ownership of the property.
An Interest in Possession, or Liferent Trust can be a useful tool when succession planning as it allows a testator to pass property to an individual, as beneficiary, while allowing another individual, as liferenter, to benefit from the same property while they are alive.
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The above case highlights the importance of accurate drafting when it comes to executing your Will. Our Private Client team are experienced and knowledgeable in all aspects of succession planning to ensure your property passes in the manner in which you intend whilst simultaneously mitigating inheritance tax. If you would like assistance in sorting out your affairs, please feel free to get in touch.