IHT interest in possession and disclaimer

One of the most difficult assets, from the point of view of the tax planner, is the family home. It is difficult for a parent to make a gift to the children of a share in the family home because the parents usually wish to go on living in it, and the problems of making a gift with reservation of benefit raise insuperable problems. The problems persist after death, when the first parent to die wishes to leave a share in the house directly to the children without prejudicing the right of his or her spouse to continue living in the house. In these circumstances, it is all too easy for the Will to be construed as creating an interest in possession in favour of the surviving spouse, with the consequently increased IHT liability on the death of the first spouse to die.Yet again, this issue has been considered by he Special Commissioners in Cork v IRC Sp C319 (noted 2002 STI 936).

The wife had owned the house, and predeceased her husband. Under her Will the house was left to trustees on trust for sale, with directions to permit the husband to live in the house and not to sell the house without the consent of the husband so long as he continued to live in the house. Subject to those directions, the house, or rather the proceeds of sale, were to form part of the residuary estate.At the time of the wife’s death the husband was aged 89, and after his wife’s death the husband stayed with the daughter, subsequently being admitted to hospital and dying just under two months after wife. There were two unusual features in the case. First of all, there was the structure of the house owned by wife. It was, in fact, divided into two flats. She and the husband live in the first floor flat while the ground floor flat was let. Secondly, it was the Revenue who sought to argue against the existence of an interest in possession.