IHTM16131 | Rights of residence: introduction

If someone has a right to reside in a property under the terms of a trust, he or she will often have an interest in possession in that property. This has a number of effects for Inheritance Tax (IHT).

The death of the beneficiary occupying the property gives rise to a claim to IHT under IHTA84/S4 with IHTA84/S49 (1). Where the person becomes beneficially entitled to the interest in possession on or after 22 March 2006, S49(1) will only apply if it is an immediate post-death interest, a disabled person’s interest or a transitional serial interest, S49(1A).

If the beneficiary ceases to reside in the property in his or her lifetime a claim to IHT arises under IHTA84/S52 (1). Where the person becomes beneficially entitled to the interest in possession on or after 22 March 2006, S52(1) will only apply if it is an immediate post-death interest, a disabled person’s interest or a transitional serial interest, S52(2A). The trusts governing the property after the beneficiary ceases to live there will be either

• in favour of an individual, a disabled person’s interest (IHTM42805) or a transitional serial interest (IHTM16061) - giving rise to a potentially exempt transfer (IHTM04057) by the beneficiary, or

• in favour of non-interest in possession or non-qualifying interest in possession trusts (IHTM16062) - giving rise to an immediately chargeable transfer (IHTM04067) by the beneficiary as deemed transferor.