Right to Occupy in a Will and IHT: How a Life Interest in Property Works for Inheritance Tax
Giving a surviving spouse a ‘right to occupy’ the family home — with the property passing to children on the spouse's death — is one of the most effective and widely used estate planning structures for second marriages and blended families. The spousal exemption covers the first death; the RNRB is available on the second death; and the children's ultimate inheritance is protected regardless of the spouse's later circumstances.
IHT Treatment of a Right to Occupy in a Will
What is a 'right to occupy' in a will?
A right to occupy (also called a life interest in property, or a trust of land with a life interest) is a provision in a will where the testator directs that a named person (the life tenant — often the surviving spouse or civil partner) is entitled to occupy a property for the rest of their life. On the life tenant's death, the property passes to the 'remaindermen' (usually the testator's children or other beneficiaries). The right to occupy does not give the life tenant ownership of the property — they cannot sell it, mortgage it, or give it away — but they can live in it rent-free. In some arrangements, the life tenant can also receive rental income if the property is let. The right to occupy is almost always effected through a trust — the trustees hold the property on trust for the life tenant for life, remainder to the children.
IHT treatment on the first death: the spousal exemption
Where the right to occupy is granted to a surviving spouse or civil partner, the gift of the life interest qualifies as a transfer to a spouse. The interest in possession trust (life interest trust) satisfies the conditions for an Immediate Post-Death Interest (IPDI) under s49A IHTA 1984 if: (1) the trust arose on the death of a person; (2) the interest in possession arose immediately on that death; and (3) the life tenant is the surviving spouse or civil partner. Where these conditions are met: the spousal exemption applies to the value of the property passing into the life interest trust — no IHT is payable on the first death. The full value of the property transfers to the trust exempt under the spousal exemption, preserving the NRB for other assets.
IHT treatment on the second death: the life tenant's estate
Because the right to occupy is an IPDI, the property is included in the life tenant's (the surviving spouse's) estate for IHT at their death. The property is treated as if the life tenant owned it beneficially (s49(1) IHTA 1984). This means: when the surviving spouse dies, the full open market value of the property at that date is included in their IHT estate — added to their other assets, less their NRB and RNRB, and the excess taxed at 40%. The property does not form part of the remaindermen's estate until it actually vests in them on the life tenant's death — but it counts in the life tenant's estate. The RNRB can be claimed on the second death where the property (or the life tenant's property used as a replacement) passes to a direct descendant — which it does on the remaindermen inheriting.
RNRB availability in a right to occupy structure
The Residence Nil Rate Band (RNRB — up to £175,000) is available on the second death (the life tenant's death) where the qualifying residential property passes to a direct descendant. In a right to occupy structure: the property passes from the life interest trust to the remaindermen (children) on the life tenant's death. The remaindermen are the direct descendants of the original testator (e.g. the children). This qualifies for the RNRB on the second death — the property passes from the trust to the direct descendants via the will of the original testator (the trust is set up by the original will). Additionally, the transferable RNRB from the first death (where the property passed to the spouse's life interest — but no RNRB was needed on the first death because the spousal exemption covered everything) is fully available on the second death, giving a potential RNRB of £350,000 (£175,000 + £175,000 TRNRB) where both deaths occur before April 2028.
The relationship between a right to occupy and the NRB on the first death
One of the IHT planning advantages of a right to occupy structure is the efficient use of the NRB on the first death. Where the deceased's estate is above the combined NRB and RNRB: (1) the entire property passes to the spouse in the life interest trust (exempt — spousal exemption); (2) the cash or other assets up to the NRB (£325,000) can be left to the children or a discretionary trust — using the first spouse's NRB on the first death; (3) the rest of the estate above the NRB passes to the spouse directly (exempt — spousal exemption). This structure gives the children an immediate inheritance of up to £325,000 NRB assets, leaves the surviving spouse with the right to occupy the home, and transfers the NRB from the first estate directly rather than relying on the TNRB.
Practical trustee duties in a right to occupy trust
The trustees of a right to occupy trust have ongoing duties: (1) maintain the property in good repair — the life tenant has the right to occupy but the trustees must keep the property habitable; (2) pay insurance premiums and ground rent/service charges on the property; (3) decide whether to permit the life tenant to sell the property and move (downsizing) — if the trust permits, the trustees can sell the existing property and purchase a replacement for the life tenant to occupy, or invest the proceeds and pay the life tenant the income; (4) act in the interests of both the life tenant (current enjoyment) and the remaindermen (preservation of capital); (5) file trust tax returns if the trust generates rental income or capital gains. The life tenant typically pays the day-to-day running costs of the property (utilities, minor repairs, council tax) as a condition of the right to occupy.
Frequently Asked Questions
Is a right to occupy in a will different from a full inheritance of the property?
Yes — significantly so. A full inheritance gives the recipient outright ownership: they can sell, mortgage, or give away the property. A right to occupy gives only the right to live there; the life tenant cannot sell or mortgage without the trustees' consent and the proceeds must be applied to a replacement property (or managed by the trustees). On the life tenant's death, the property passes to the remaindermen under the original will trust — the life tenant has no power to redirect it. The life tenant also cannot occupy in a way that damages the property or breaches the trust terms. In exchange for this restriction, the property qualifies for the spousal exemption on the first death and the RNRB on the second death.
Can the surviving spouse sell the property held in a right to occupy trust?
This depends on the trust deed. In most right to occupy will trusts, the trustees have the power to sell the property with the life tenant's consent and purchase a replacement — allowing the surviving spouse to downsize, upsize, or move. The proceeds of sale must be retained in the trust and used to acquire a replacement property for the life tenant to occupy (or the trustees hold the proceeds and pay the income to the life tenant). If the trust terms permit, the life tenant may also be able to direct the trustees to sell and invest the proceeds. Without explicit trust terms, sale requires all beneficiaries' consent (including the remaindermen). The will trust should include appropriate powers of sale and replacement acquisition.
What happens to IHT if the surviving spouse has a large estate and the property pushes it over the threshold?
The right to occupy property is included in the surviving spouse's estate for IHT on the second death — even though the spouse never owned the property outright. If the surviving spouse has a large personal estate (investments, savings, pension assets) plus the right to occupy a valuable property (included via the IPDI rules), their estate may significantly exceed the NRB and RNRB. IHT at 40% on the excess is then paid from the estate before the property passes to the remaindermen. The remaindermen will inherit the property free of IHT (IHT is paid by the estate before distribution), but the estate's other assets may be substantially reduced by the IHT charge. The RNRB (up to £350,000 combined RNRB + TRNRB) reduces the exposure where the property passes to direct descendants.
Does a right to occupy trigger any stamp duty when the property passes to the remaindermen?
No — where a property in a will trust passes to the remaindermen on the life tenant's death (i.e. in accordance with the trust's original terms), no Stamp Duty Land Tax (SDLT) is payable on the transfer. The transfer to the remaindermen is a distribution from the trust on the life tenant's death — not a 'purchase' or sale. SDLT applies to purchases of land, not to distributions from will trusts under the original trust terms. If the trustees sell the property to a third party during the trust period, the purchaser pays SDLT in the ordinary way on the market value. The remaindermen receive the net proceeds (after SDLT is factored into the sale) rather than the property itself.
Is a right to occupy appropriate for a second marriage where children from a first marriage are the remaindermen?
Yes — a right to occupy is one of the most commonly used structures for second marriages with children from a previous relationship. It solves the core tension: the testator wants the current spouse to remain in the family home for life, but wants the property to pass to the children (not the current spouse's family) on the spouse's death. A right to occupy achieves exactly this: the current spouse can live there for life; on their death, the property passes to the testator's children (remaindermen) rather than to the current spouse's estate or family. The structure is IHT-efficient (spousal exemption on the first death; RNRB on the second). However, the trust must be carefully drafted to address what happens if the spouse remarries, enters a care home, or wishes to sell and move.
A Right to Occupy Requires a Properly Drafted Will Trust
A right to occupy is a powerful planning tool — but it only works if it is correctly documented in a will trust with adequate trustee powers. WillSafe will kits provide the foundational structure. For complex blended family or second marriage arrangements, supplement with a specialist adviser to ensure the trust terms are exactly right.
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