Mrs Watkins (W) died on December 12, 1999. Her house consisted of two flats – a ground-floor flat which was let and a first-floor flat in which she had lived with her husband (H).
Her will included a gift of her house to her trustees on trust for sale, with directions that H might live in the house and use it as his principal private residence and have the use of the household goods so long as he wished, provided he paid all outgoings and kept the house and goods insured to the trustees' satisfaction.
Until H had, in the opinion of the trustees, ceased to be entitled to use the house as his principal private residence, the trustees were directed not to sell the house without H's consent. The will went on to provide that when the trust ended, the house would form part of W's residuary estate.
H went to stay with his daughter (D) and went back to the house on a couple of occasions to collect some possessions. H received a copy of W's will on December 27. His daughter read the will to him but nothing was discussed about his right to occupy the house. His daughter considered that H was living permanently with her. She wrote to H's bank and asked for his account to be transferred to her local branch.
H was admitted to hospital on January 4, 2000. On January 15, members of H's family went to the house and removed possessions. W's executors considered that items belonging to W's estate had been removed and changed the door locks.
D visited H in hospital on January 18. During the visit, H indicated that he needed a carer and did not want to be a burden. D interpreted this to mean he might live in the house. However, she overheard him saying to medical staff that all he wanted was to live with D.
On February 8, D wrote to the executors, through her solicitors, stating that H had a life interest in the house but, due to his recent ill health, would not continue to reside there. H died in hospital on February 10. He had continued to pay the utility bills for the house until his death.
The Inland Revenue issued a notice of determination to W's executors that H had not acquired an interest in possession in the house on W's death. The executors appealed. The Revenue contended that:
Under W's will, H had first to demonstrate that he wished to live in the house.
Alternatively, H's actions had amounted to a disclaimer by conduct.
The commissioner held that it was clear from the will that there was an immediate gift to H. H did not have to do anything to claim his entitlement. However, the property to which H had an entitlement to an interest in possession (a present right to present enjoyment) was the first-floor flat. He was not given a life interest in the house, which would have carried the right to receive rent from the ground-floor flat, but a right to occupy and use the house as his principal residence. That could relate only to the first-floor flat, which was capable of being used as his residence, and not to the ground-floor flat, which was let. Accordingly, H never had an interest in possession in the ground-floor flat.
The commissioner also held that a disclaimer could be made by an informal act but would not be readily presumed where it was to the advantage of the person to retain the gift. There was also a presumption that a person would accept a legacy unless the contrary was proved.
There was no statement or action by H pointing clearly to a disclaimer. The evidence was finely balanced. H had done nothing to show clearly that he never intended to occupy the property. The evidence in favour of a disclaimer by conduct was not strong enough to displace the presumption that the legacy would be accepted.
The commissioner concluded that a disclaimer by conduct had not taken place. Accordingly the executors' appeal was dismissed in relation to the ground-floor flat but allowed in relation to the first-floor flat.
Where a person becomes entitled to an interest in settled property but disclaims the interest, if the disclaimer is not made for consideration in money or money's worth, the IHT legislation applies as if he had not become entitled to the interest. A disclaimer cannot be made once the interest has been accepted, for example, by accepting a benefit under it.
Under English law, a disclaimer is possible only in relation to the entire interest. It is accepted by the Revenue that, under Scots law, it is sometimes possible to disclaim part of an interest in a residuary estate.
A disclaimer gets rid of the interest as if it had never been conferred but it is not possible to redirect the disclaimed benefit. The destination of the disclaimed benefit depends on the trusts of the settlement. Sometimes the next interest will be accelerated and sometimes the benefit disclaimed will be held on resulting trust for the settlor or his estate or, in the case of an interest under a will, fall into residue or pass as on intestacy.