Tuesday 26th November 2019
The recent decision in Margaret Vincent v HMRC provides food for thought for those advising clients who co-own property with other family members. In this case, a married couple co-owned their home with the wife’s brother but, of course, co-ownership can be among any type of relationship, familial or otherwise. Co-ownership is nothing new but, as life expectancy increases, it is becoming more common for an elderly parent to move in to live with a child, for example, and advisers may find themselves giving advice on this topic on a more frequent basis.
This case is a reminder to consider all the implications of what may seem a sensible course of action so that all the consequences and options can be discussed thoroughly with the clients to ensure there are no nasty surprises years down the line.
In the Vincent case, as well as trust documentation setting out the terms of ownership, to provide extra protection, the parties executed wills detailing what should happen to the surviving co-owner in relation to the property because whilst the brother left his share back to the other co-owners, his sister and her husband left their share to their daughter.
If the sister and her husband died first (which is what did actually happen) the brother would be able to continue to occupy the property by virtue of his own existing share of course, but there could be a potential issue if the daughter inherited from her parents and then died, divorced, became bankrupt or decided she wanted to sell the property. Of course, none of these scenarios may ever happen but rather than take the chance, a belt and braces approach was adopted and a clause inserted into the wills allowing the brother to live in the property as long as he wanted.
The difficulty here, is that upon the brother’s death, the clause in the will was construed by HMRC as giving him an interest in possession meaning that the whole value of the property was deemed to be in the estate for inheritance tax purposes, rather than purely his own share. The moral of this case for advisers is to think carefully when advising co-owners and consider whether or not your advice to prevent one problem arising, may cause another one!
Central Law Training offers a range of will drafting and trust courses where this topic can be explored further:
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