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:
1. 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.
