PropertyTrustsWillsThe Difference Between a Protective Property Trust and a Right to Occupy

11 September 2020by Chris Rattigan-Smith

Protective Property Trusts (PPTs) and Right to Occupy Trusts (RTOs) are similar trusts. Both trusts give property to trustees for the trustees to allow specified people to live in a property for a specified time. There are however some key differences between the trusts, both how they are drafted and potentially how they are taxed.


Both trusts will pass the deceased’s interest in a property to their trustees on death for the trustees to hold on the terms of the trust. The terms of both trusts will state that the trustees must let a certain person or people (known as the Occupant or Occupants) live in the property subject to some conditions such as keeping it in good repair, paying outgoings and keeping it insured in the names of the trustees. Whilst this is ongoing, the trustees cannot sell the property without the Occupant’s permission in writing.

The trust will state a trust period of how long the Occupant can continue to live in the property. This might be for the rest of their life or alternatively it could end earlier, for example after a certain number of years, when the Occupant reaches a certain age or on remarriage.

A power to allow the Occupant to move can be included in both trusts. The Occupant in these cases can request that the trustees sell the property and use the proceeds to purchase a new property. The trustees may purchase the new property with any other person, for example jointly with the Occupant, or with another trust.

Either trust could also potentially contain a power for the trustees to revoke or reduce their entitlement under the trust at their discretion.

Differences in appearance

The main difference between a PPT and an RTO is relating to income from the trust. Under a PPT, if the trust creates any income the Occupant is entitled to that income. Whilst the Occupant is living in the property, the trust is unlikely to create income but this could change if the Occupant moves  out from the property and the property is rented or if surplus cash is released by downsizing (in which case the trustees will invest it to create an income).

A PPT can also include trustee powers to advance capital to the Occupant at their discretion. This could either be to the Occupant outright or the trustees could loan capital to them on any terms that they see fit.

In contrast to this, an RTO is simply the right to live in the property.

Differences in tax

PPTs and RTOs will ordinarily be taxed in the same way when it comes to inheritance tax.

If a PPT is created by will and takes effect immediately on death, it will always be treated as an Immediate Post Death Interest (IPDI) and be taxed as a qualifying Interest In Possession (IIP). This means for IHT purposes that the Occupant of the trust is treated as inheriting the trust assets. If the Occupant is the deceased’s spouse or civil partner, the spousal exemption will be available on the deceased’s death and no IHT will be due. There may be IHT due on the deceased’s death however if the life tenant is not a spouse or civil partner (for example an unmarried partner) depending on the value of the deceased’s estate.

During the Occupant’s lifetime, there are no anniversary or exit charges but when the Occupant dies the trust assets are revalued and treated as part of the Occupant’s estate for IHT purposes.

The same IHT treatment will also usually apply to an RTO, but this is not always the case. If the trustees are given an overriding power to revoke the RTO, HMRC may treat the trust as a relevant property trust. This would mean that trust assets could be taxed on the deceased’s death, even if the Occupant is a spouse or civil partner. Furthermore, it would also mean that the trust will be subject to anniversary and exit charges at a maximum of 6%.

Without an overriding power to revoke, an RTO will be treated the same as a PPT.

It is also worthwhile noting for either a PPT or RTO that if the trust created by the will does not take effect immediately on the deceased’s death, the trust will not be an IPDI and consequently not an IIP. This means it would be treated as a relevant property trust. A common example of this is a subsequent trust that only comes into effect when another trust ends, such as if the deceased creates a PPT for their spouse which is followed by a PPT/RTO for their son. The subsequent trust would always be treated as a relevant property trust as it does not take effect immediately on the deceased’s death.

Chris Rattigan-Smith