Published on:

The case of Margaret Vincent v HMRC (TC07432) concerns a married couple who co-owned their home with the wife’s brother, the brother’s right to occupy the family home and whether this constituted an interest in possession in the property.

This point was crucial to determining the value of the brother’s estate on death, as assets in which he had an interest in possession would be included in his chargeable estate for Inheritance Tax (IHT). In 1985, the married couple and the brother purchased a property in which they could all live together in their retirement.

The brother contributed a larger proportion of the purchase price and therefore they executed a declaration of trust declaring that the property was to be held as to 5/8 for the brother and 3/8 as joint tenants by the married couple. The couple put in place mirror wills which meant when the second spouse died, the brother could continue to live in the property rent-free for “as long as he shall desire” and so long as he paid the bills and maintained the property. The remainder of the estate was to go to their daughter, Mrs Vincent.

The brother had a similar will, in that he left his estate to his sister or brother-in-law if the sister died first and then to Mrs Vincent. The husband died first and his share passed by survivorship to his wife.  On her death, Mrs Vincent was registered as the owner of her parents’ 3/8 share. The brother continued to live in the house, paying the bills and maintain the property, until his death 12 years later, though he did spend extended periods abroad during which time Mrs Vincent would stay at the property.

HMRC assessed the full value of the house to IHT with no discount for shared ownership on the basis that he had an interest in possession. Mrs Vincent appealed saying there had never been any intention to confer an interest in possession on her uncle. He simply had permission to live there and the wills of her parents needed to be interpreted flexibly.

The First Tier Tribunal (FTT) rejected Mrs Vincent’s interpretation and agreed there was an interest in possession which must be included in the brother’s estate on his death. The FTT found that the words used in the wills made it clear the brother was to be allowed to live at the property for the remainder of his life and no flexible interpretation was required. The intention was to protect his interest from “what ifs” rather than leave it to the discretion of either the trustees or Mrs Vincent.

There is a long line of cases concerning the construction of terms in a will where the occupation of property is involved, which highlights that this can be a contentious area.  All the more important to ensure your Will is drafted professionally.