IHTM16134 - Rights of residence: the leading case
The leading case on rights of residence for IHT is IRC v Lloyds Private Banking [1998] STC 559
In this case Mrs Evans bequeathed her half share of the matrimonial home under clause 3 of her will-
“(1) while my husband remains alive and desires to reside in the property and keeps the same in good repair and insured to its full value with insurers approved by my trustees and pays all rates, outgoings etc my trustees shall not make any objection to such residence and shall not disturb or restrict it in any way and shall not take any steps to enforce the trust for sale or to realise (sell) any share therein or to obtain any rent or profit from the property
(2) On the death of my said husband I devise and bequeath the said property .to my daughter ….absolutely.”
The Special Commissioner agreed with the taxpayers that the devise was a gift of the separate share to the daughter, subject only to a direction to the trustees to postpone sale. HMRC appealed.
In the High Court, Lightman J held that the terms of clause 3 gave Mr Evans an interest in possession in Mrs Evans’s share -
“ the critical question is whether cl 3(1) of the will was dispositive….or merely laid down administrative directions to the trustee (p565 c)….If the will had not included the provisions made in cl 3(1) or if such provisions were without legal effect, the legal position was or would have been that after the death of Mrs Evans, both Mr Evans and the daughter were each equally entitled to occupy the whole property, each paying half of the outgoings and each was entitled to apply for an order for sale; and accordingly not only would Mr Evans’s occupation be non-exclusive, but it would also be precarious, depending on no successful application being made by the daughter for an order for sale.” (p565 h)
“The regime designed by cl 3(1) is quite different. So long as Mr Evans fulfils the conditions…. he is for the rest of his life elevated to the position of sole occupier, free…….from any claim to pay for the right to exclude the daughter and…from her seeking an order for sale. (p565 j).
“In my view, although the drafting and language of cl 3(1) is in terms placing restrictions on Lloyds as trustee, its purpose and effect is to confer upon Mr Evans a life interest in the half share. His own rights as tenant - in- common were not enough to entitle him to exclusive occupation of the property for the rest of his life; he required for this purpose during this period also the rights attaching to the (other) half share, and it was intended that he should enjoy these rights . In short cl 3(1) is dispositive and confers upon Mr Evans a determinable life interest in the half share though it is dressed up as a set of administrative directions. What is decisive, however, is the substance of the provision and not the clothes or label which it wears” (p566 b).
Lightman J sought to establish the intentions of the testatrix.
Note:
- The term ‘joint ownership’ is used in this connection although joint property passing by survivorship could not give rise to these problems. However, as joint property passing by survivorship is often turned into tenancy in common by an Instrument of Variation under IHTA84/S142 the wider expression is used here.