For many people, the value of their home means that their estate will be liable for Inheritance Tax. If you own your property with someone else, it can be an advantage to hold it as tenants in common. We explain what this means and how it could benefit you.
When couples own a property jointly, there are two ways to own it. Firstly, they can hold it as joint tenants. Secondly, they could own it as tenants in common.
Quite often when people first buy a property together, they own it as joint tenants. This means that if one of them dies, the property automatically becomes owned by the survivor. It will not be part of the estate of the first person to die.
The whole value of the property would then be left by the survivor when they die, meaning that Inheritance Tax would be payable on this sum. In some cases, there may be an allowance to set against this, for example, if a couple are married.
Where a couple are unmarried, then there is no Inheritance Tax allowance for them to use beyond the standard nil-rate band which everyone receives. This could mean that if the structure of their estate is not carefully planned, then Inheritance Tax could be paid on assets when the first of them dies and again on the same assets when the survivor dies.
Protecting jointly held assets
The type of ownership of a jointly held property is key to protecting it for future generations.
Where a property is held as joint tenants, there is a risk that it may not be passed on as you would want. This is because when the first person dies, the property automatically becomes wholly owned by the survivor. The property might ultimately have to sold to pay for their care home fees. Alternatively, the survivor could remarry and the new spouse might inherit the property, or they could choose to leave the estate to someone else entirely.
There is a way to protect your share of the property and ensure that it does ultimately pass to your choice of beneficiary, for example, your children.
This is done by changing the ownership of the property to tenants in common. You are then free to leave your share of the property in your Will to whomever you choose. If you still want your partner to be able to live in your home for as long as they want to, then you can leave them a life interest.
On their eventual death, your half of the property would go to your beneficiaries. Your partner would not be able to use this half of the property to pay for care home costs or be able to leave it to anyone else in their Will. In addition, it would not form part of their estate, so Inheritance Tax would not be payable on its value.
Planning for the future
To make sure that your estate is protected as far as possible and that your loved ones receive the share of your estate that you would like them to have when the time comes, you should consider whether it would be better for you to hold any jointly owned property as tenants in common.
At Elm Legal we are experts in structuring estates both to protect assets and to legitimately minimise tax liabilities. We can discuss your situation with you and advise you on the best course of action.
This could involve changing the way you own your property, which is simple to do. We can arrange for this to be done on your behalf and also ensure that you have the right Will in place to make sure your wishes are carried out.
By making sure you have a valid Will in place, you will have the peace of mind of knowing that your family will be looked after when the time comes and that you have done all you can for them.
We can answer any questions you may have and ensure that your Will directs your assets exactly where you want them to go.
If you would like to speak to one of our specialist Wills and Probate lawyers, call us now on 0117 952 0698 or Contact Us and we will be happy to explain the options available to you without obligation.