CG65443 - Private residence relief: settled property: entitled to occupy

Before this case was decided in 1976 we took the view that an individual was only entitled to occupy a dwelling house under the terms of the settlement if that settlement specifically gave that individual a right to occupy a specific property.

In Sansom v Peay (52TC1) the trustees had a discretionary power expressed in the following terms.

`Power to permit any beneficiary to reside in any dwelling house or occupy any property or building which or the proceeds of sale of which may for the time being be subject to the trusts hereof upon such conditions as to payment of rents, rates, taxes and other expenses and outgoings and as to repair and decoration and for such period and generally upon such terms as the trustees in their discretion shall think fit.'

We considered that the individuals occupying the trust property, which was called Wickwoods, by the exercise of this power were merely occupying by licence of the trustees, not under the terms of the settlement.

The view of Brightman J, in the High Court was expressed in these terms

`In this case the beneficiaries were in occupation of `Wickwoods' throughout the relevant period as their only or main residence. They were in occupation pursuant to the exercise by the trustees of a power expressly conferred by the settlement to permit those beneficiaries to go into occupation and remain in occupation. The trustees exercised that power, and the beneficiaries thereupon became entitled to go into occupation and to continue in occupation until the permission was withdrawn. The trustees never did withdraw permission until they required vacant possession in order to complete the exchange. Therefore, looking at the matter at the date of the disposal, the beneficiaries were persons who, in the events which happened, were entitled to occupy the house and did occupy it under the terms of the settlement. That, in my view, is the correct approach to the [Section] in dealing with the type of case which is before me, and in those circumstances I reach the view that the terms of [Section 225] have been satisfied and that the gain is exempt from Capital Gains Tax.'

The trustees were exercising a discretion conferred on them by the settlor in order to confer the settlor's bounty on the beneficiaries. The beneficiaries entitlement to occupy arose from a power in the settlement exercised at the discretion of the trustees.