IHT appeal allowed as friend of  deceased had no interest in possession

In Hall & Lopez as trustees of the Carolina Raboni estate v HMRC [2023] UKFTT 32 (TC), the First-tier Tribunal (FTT) confirmed that an occupying beneficiary had not enjoyed an interest in possession (IIP) in the deceased's property under her will and no inheritance tax (IHT) was due upon the sale of the property following the beneficiary's subsequent death.

Background

Mrs Raboni was a widow living alone at a house in East Finchley (the property). A few doors from the property lived Mr Boggia, who was living with his sister and who had known Mrs Raboni and her late husband for many years. Mr Boggia visited Mrs Raboni regularly, kept her company and helped her with household chores. As Mrs Raboni's health deteriorated, Mr Boggia spent several nights a week with Mrs Raboni at the property. 

Mrs Raboni's will provided for the property to be retained as Mr Boggia's home during his lifetime, and for him to live there without charge. The residuary beneficiaries were Mrs Raboni's five nieces and nephews and another friend, Mrs Silva.

When Mrs Raboni died in 2004, the probate value of her estate was £300,000 and there was insufficient money in the estate to settle the £15,600 IHT liability which arose on the deemed transfer of value on Mrs Raboni's death. The beneficiaries decided to pay the IHT from their own funds. When Mr Boggia died in 2017, having resided at the property until his death, the property was sold to a third party on the open market for £827,000.

Following Mr Boggia's death, the appellants paid IHT of £190,000, on the basis that Mr Boggia had held an IIP in the property at the time of his death. This was the subject of a request for a refund made to HMRC in April 2019 on the basis that Mr Boggia had not held an IIP in the property. HMRC refused the request for a refund and issued a Notice of Determination which the appellants appealed to the FTT. 

FTT decision

The appeal was allowed. 

It was common ground that had there been sufficient funds in Mrs Raboni's estate to pay the IHT liability on her death, Mr Boggia would have had an IIP. 

It was also common ground that if the house had been sold to pay the IHT liability, no IIP would have existed.

The appellants argued that Mr Bpggia did not have an IIP immediately on Mrs Raboni's death, he simply had a right to compel due administration of Mrs Raboni's estate. As her will trust was not capable of being achieved due to lack of funds this never matured into an IIP. Had the property been sold, Mr Boggia would not have had an IIP after the sale. The residuary beneficiaries’ choice to pay the IHT and avoid a sale did not in itself give rise to an IIP. HMRC argued that Mr Boggia's rights did mature into an IIP and that the property could have been mortgaged to pay the £15,600 IHT liability.

The FTT considered what the executors would have been compelled to do in the absence of agreement by the parties. If the executors had done nothing, the residuary beneficiaries could have compelled the administration of the estate and HMRC could have compelled payment of the IHT liability. The only way they could have compelled payment of the IHT liability would have been for the property to have been sold, in which case there would have been no IIP. As Mr Boggia could not enforce a right under the will trust to live in the property, because Mrs Raboni's estate contained only the property and there was a creditor, the FTT concluded that Mr Boggia did not have an IIP in the property.

Comment 

This decision contains a helpful discussion of some important points of principle to consider when determining whether an IIP exists for IHT purposes. In particular, whether there is sufficient liquidity in an estate to pay the IHT liability could, in similar cases, be an important factor in determining whether an IIP exists.

The decision can be viewed here.