OUr News …

Life Interest Trust or Right to Occupy? Understanding the Difference - and the Tax Consequences

When preparing a Will, particularly in the context of second marriages or blended families, two frequently considered options are a life interest trust and a right to occupy. While they can appear similar in practical effect - often allowing a surviving spouse or partner to remain living in a property - they are not identical in legal structure or tax treatment. The distinction lies not in the label used, but in how the provision is drafted.

A life interest trust (commonly an Immediate Post-Death Interest) gives a named beneficiary a formal legal entitlement to benefit from trust assets during their lifetime. This typically includes the right to occupy a property and, where applicable, to receive income from other trust assets. The capital is preserved for ultimate beneficiaries, such as children, after the life tenant's death. A right to occupy, by contrast, is often narrower in scope. In most professionally drafted Wills, a right to occupy is implemented through trustees holding the property for the ultimate beneficiaries, subject to the surviving spouse's right to reside there. In those circumstances, it will usually constitute an interest in possession, and therefore operate as a form of trust. However, if drafted more loosely - for example, as a personal permission or without clear trust provisions - the legal and tax consequences may differ. The outcome depends entirely on the drafting.

From a tax perspective, this is significant. A properly structured life interest trust for a surviving spouse will normally qualify for the spouse exemption for Inheritance Tax on first death, meaning no IHT is payable at that stage. The trust assets are then treated as part of the surviving spouse's estate for IHT purposes on their death. A right to occupy can achieve the same result if it amounts to a qualifying interest in possession. However, if it does not meet those requirements, it may fall within the relevant property regime, potentially exposing the trust to periodic or exit charges. Capital Gains Tax treatment can also vary depending on how the arrangement is structured and whether principal private residence relief applies.

Cohabitation or Marriage? A Question Worth Asking

At Christchurch Solicitors LLP, we ensure that clients understand not just the terminology, but the legal and tax consequences of each option at the drafting stage. What may appear to be a subtle difference in wording can materially affect the protection afforded to a surviving spouse and the tax efficiency of the estate. Careful, specialist drafting ensures that both family security and fiscal prudence are properly balanced.

Cohabitation or Marriage? A Question Worth AskingAt Christchurch Solicitors LLP, we are often asked whether marriage really makes a financial difference in modern life. For many long-term couples who live together, share property and raise children, the relationship feels no different from marriage. However, in law, the distinction can be significant. Married couples and civil partners benefit from valuable tax exemptions that unmarried couples simply do not. For example, transfers of assets between spouses or civil partners are generally free from capital gains tax, and on death there is an unlimited inheritance tax spouse exemption. By contrast, long-term cohabitants are treated as separate individuals for tax purposes, potentially exposing estates to substantial inheritance tax liabilities.

The inheritance tax position alone can mean the difference between preserving family wealth and losing a significant proportion to HMRC. Assets passing between spouses or civil partners on death are exempt from inheritance tax, and any unused nil-rate band can be transferred, potentially doubling the available allowance. Unmarried partners do not benefit from this protection, regardless of how long they have lived together. In practical terms, a modest civil ceremony at the register office can safeguard assets worth hundreds of thousands of pounds. It is no coincidence that shortly before his death, comedian Ken Dodd married his long-term partner, a decision widely understood to have secured substantial tax advantages for his estate.

Marriage or civil partnership is, of course, a personal decision. But from a legal and tax planning perspective, it is one that deserves careful consideration. A simple, low-key ceremony can provide powerful financial protection, particularly for couples who own property together or have accumulated significant assets. We encourage anyone in a long-term relationship to take advice and understand the implications — not only emotionally, but legally and financially — before assuming that cohabitation offers the same security as marriage.

Family Mediation Voucher Scheme EXTENDED

 A little-known government scheme giving separating couples a payment of up to £500 in funding to help during the separation process has been extended by the UK Government until March 2026.

The scheme could see more couples involved in mediation and avoiding lengthy court proceedings. Our Family Law team can give you further information on using the service, alongside solicitor-aided representation.

Under the scheme, which will now run until March 2026, families can claim help towards mediation services, which can assist in sorting out financial and custody arrangements. A trained mediator oversees the process and works with the separating couple to find the best solution.

This initiative aims to reduce court backlogs and help couples resolve financial or custody arrangements amicably.

 https://www.gov.uk/guidance/family-mediation-voucher-scheme

divorce solicitors in suffolk …

If you separate from your spouse you should immediately make a Will. The consequence of not doing so is that if you then, heaven forbid, die unexpectedly your ex-spouse will benefit entirely from your estate.

However, if you separate then go on to divorce without making a will, your estate would go to your next of kin (this could be your children, parents or siblings) under intestacy laws.

Imagine this scenario; Charlotte marries Michael. She has three children from a previous marriage. After two years Charlotte and Michael separate but don’t divorce. Charlotte then dies unexpectedly. Charlotte had made a Will four years before she’d even met Michael. All Wills are revoked on marriage so that applies here. Charlotte’s children receive a share of the estate only because she dies intestate and leaves a surviving spouse - her husband - even though they are separated and had only been married for two years. Charlotte did not intend for this to happen.

Sounds unfair?

If you’re thinking of separating and would like to look out for your loved ones, do get in touch with us now for a confidential no-obligation chat with a qualified solicitor.

Call us on 01473 355160 or email us at: info@christchurchlaw.co.uk