Leaving someone the right to live in your home

A will that gives someone an enforceable right to live in a home for life, or until they choose to leave, usually creates an interest in possession in the property. Because it arises on the death it is normally an immediate post death interest, so for inheritance tax the occupier is treated as owning the home: it can be spouse exempt on the first death, it is taxed as part of the occupier’s estate when they die, and the residence nil rate band can be available on either death if the right people inherit.

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When does a right to live in a home count as an interest in possession?

There is no statutory definition of an interest in possession in England, Wales or Northern Ireland. HMRC relies on the House of Lords decision in Pearson v IRC: a person has an interest in possession when they have a present right of present enjoyment of the property, whether or not it produces any income. A right to occupy a house is enjoyment of that kind. HMRC’s Inheritance Tax Manual at IHTM16131 says that someone with a right to reside in a property under the terms of a trust will often have an interest in possession in it.

What counts is the substance of the clause, not its label. In IRC v Lloyds Private Banking a wife left her half share of the matrimonial home on terms that, while her husband wished to live there and kept the property insured and in repair, her trustees were not to disturb his occupation or sell, with the share then passing to her daughter. The clause was drafted as directions to the trustees, but the High Court held that it gave the husband a determinable life interest in her half share. HMRC treats that case as the leading authority (IHTM16134).

HMRC adds at IHTM16135 that the right can be for life or a shorter period, the property need not produce income, and normal temporary absences do not count as ceasing to reside.

What if the will only lets the trustees allow someone to live there?

Many wills leave the home on discretionary trusts with a power for the trustees to let a beneficiary occupy it. Statement of Practice 10/79 sets out HMRC’s view. The mere existence of the power does not create an interest in possession. Allowing non exclusive occupation, or granting a tenancy at full rent, does not create one either. But if the power is wide enough to give an exclusive or joint right of residence, even a revocable one, and the trustees use it with the intention of giving a particular beneficiary a permanent home, HMRC will normally treat that as creating an interest in possession.

Timing is important. If the trustees of a will trust create such an interest within two years of the death, section 144 of the Inheritance Tax Act 1984 can read the appointment back into the will, so it is treated as an immediate post death interest from the date of death. Outside that window, an interest created later by trustees is not an immediate post death interest and the property stays within the relevant property regime. The mechanics are covered in section 144 appointments from will trusts.

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What if more than one person can live there, or the deceased owned only a share?

Where a will lets several people occupy, each person who has the right has an interest in possession in a share. In Woodhall v IRC a father’s will let three children occupy the family home. By the time one son died, he and his brother both still had the right to live there jointly, even though the brother had moved out, so tax was due only on the deceased son’s half share (IHTM16136). When an interest in part of a property is valued, section 50(5) of the 1984 Act works from the value of the whole house, so no discount for joint ownership is given (IHTM16103).

HMRC also says that if a house is left to A for life on condition that A lets B live there too, A alone has the interest in possession. B cannot enforce anything against the trustees and has no interest (IHTM16103).

How is it taxed on the first death?

An immediate post death interest is one that a person becomes entitled to under a will or intestacy on the death itself (IHTM16061). Section 49(1) of the 1984 Act then treats the occupier as beneficially entitled to the property in which the interest subsists. The consequences on the first death depend on who the occupier is.

Spouse or civil partner. Section 18 exempts a transfer to the extent that property becomes comprised in the estate of the transferor’s spouse or civil partner. Because the occupier is treated as owning the home, the value passing on to the right to occupy is normally exempt. See immediate post death interest trusts.
Unmarried partner. HMRC confirms that people living together but not married or in a civil partnership are not spouses, however long the relationship (IHTM11032). The home is therefore chargeable on the first death, subject to the nil rate bands.
A child or grandchild. Under section 8J(4), property that becomes settled on the death is inherited by a person who takes an immediate post death interest in it, so a right of occupation for a direct descendant can attract the residence nil rate band on the first death.

What happens when the occupier dies or moves out?

On the occupier’s death, the home is taxed as part of their estate under sections 4 and 49(1), along with their free estate (IHTM16131). If they stop living there in their lifetime and the right ends, section 52 treats them as making a transfer of value of the property. HMRC’s guidance says it is a potentially exempt transfer if the property then passes to an individual, and an immediately chargeable transfer if it stays on other trusts. The lifetime position is explained in ending a life interest during the beneficiary’s lifetime.

Exactly when occupation ended can be contested. HMRC’s example at IHTM16138 is an occupier who falls ill on holiday, loses capacity and dies a month later. In the Watkins case, a widower whose wife left him a right to live in a flat never moved back in before his own death, but the Special Commissioner held that he had not disclaimed the interest by conduct (IHTM16137).

Can the occupier’s estate claim the residence nil rate band?

Often, yes. A qualifying interest in possession in a home the person lived in counts as a residential property interest in their estate (IHTM46011). Section 8J(5) then says that where the deceased had an interest in possession in settled property, a person inherits it if they become beneficially entitled to the property itself on that death. So if the will says the home passes outright to the testator’s children when the occupier dies, those children inherit it from the occupier.

For a surviving spouse, the testator’s children from an earlier relationship are still within the class: section 8K treats step children as children of the deceased (IHTM46013). If instead the home stays on continuing trusts after the occupier dies, it is not inherited for this purpose. The maximum residence nil rate band is £175,000 for 2026 to 2027, and it tapers away for estates over £2 million. Where trustees sell the home or end the interest during the occupier’s lifetime, section 8HA treats that as a disposal by the occupier, which can support a downsizing addition (IHTM46055). The wider rules on trusts are in the residence nil rate band and homes left in trust.

How might this work in practice?

Illustration only. Ann and Bill own their home as tenants in common in equal shares. Ann’s will leaves her half share to trustees on terms that Bill may live in the house for the rest of his life, and on his death her half passes to her son Carl from her first marriage.

On Ann’s death Bill has an immediate post death interest in her half share. He is treated as owning it, so it is covered by the spouse exemption and no tax is due on that share.
On Bill’s death his estate includes his own half and Ann’s half, so the whole house is taxed in his estate. Ann’s half passes outright to Carl, who is Bill’s step child, so that half is closely inherited from Bill. Bill’s own half counts too if his will leaves it to a direct descendant.
If Bill had moved into a care home and the trustees had ended his right so that Carl took Ann’s half outright, Bill would have made a potentially exempt transfer of that half share instead.

What mistakes come up most often?

Treating a clause as administrative because it is drafted as a direction to trustees. The Lloyds Private Banking case shows HMRC will look at what the clause does.
Leaving a right to occupy to an unmarried partner and assuming the spouse exemption applies.
Letting trustees of a discretionary will trust grant a permanent home more than two years after the death, which produces a non qualifying interest rather than an immediate post death interest.
Forgetting that the trust half is added to the occupier’s estate when they die, which can push their own assets into tax, even though their will cannot leave that half.
Ignoring capital gains tax relief on a later sale: see private residence relief for trust owned homes.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.