One of the simplest pieces of advice I give to my homeowner clients, day in and day out, is about holding their properties as tenants in common.

But what does this mean? This article aims to explain the legal terminology of tenants in common in plain English and how it could benefit you.

How tenants in common works;

Most couples own their homes as joint tenants, meaning they both own the whole home. Holding the property as tenants in common means that each own a share of the property, either a percentage or half each. This protects the agreed share for couples who have put unequal deposits into a property. If parents are gifting deposits to their children, it is also a way of easing fears in case of a break-up or death.

In the case of tenants in common, one partner can leave their share of the property on death whilst allowing the other partner to continue living there, passing the remaining share on death. It can also prevent your home being sold in the event you need to go into long term care.

Tax implications;

There is no Inheritance Tax (IHT) for assets left in a Will to their spouse – in other words the surviving partner doesn’t have to pay IHT. After the remaining partner dies, the beneficiaries of their estate, usually the children, do have to pay IHT.

The rising cost of houses means that one property alone can mean the estate is over the IHT threshold. If the house is owned as joint tenants, both own the whole property. If one partner dies, the other automatically becomes the sole owner of the home. In the case of tenants in common each person owns a share of the house, usually split half and half.
Joint owners can split their home in two, therefore benefiting from tenants in common. By doing so, the half belonging to the person who passes away first, would be inherited by the beneficiaries immediately.

Provided the half is worth less than £325,000 – the current IHT threshold, no tax will be due. When the remaining partner dies, their half, inherited by the same children, could be under the threshold which again would mean no IHT is due.

Making it happen

You’ll need to inform Land Registry of the split and also write to each other to specify your intentions of the split.

As providers of wills, lasting powers of attorney and trusts we can take care of all of this on your behalf.

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To speak with one of our specialist Wills & Probate Lawyers, please call us now on 0117 952 0698 or Make A Free Will Enquiry and we will discuss your current circumstances with you and explain all available options available to you.

Inheritance Tax (IHT) can be a nasty surprise during the administration of a Will. New Year is the ideal time to check that you’ve done all you can to minimise the burden.

Increasing property prices has had the effect of increasing the amount of Inheritance Tax many people are paying. There are ways of reducing the amount due if you plan in advance.

The IHT threshold

IHT is payable at the rate of 40% of the value of an estate above £325,000, for example on a £400,000 estate, IHT is 40% of £75,000, ie. £30,000. The person who is appointed as executor or administrator of a Will is responsible for valuing the deceased’s estate and calculating the amount of IHT due, then making payment within six months of the date of death to HM Revenue & Customs.

IHT is not payable on money left to a spouse or civil partner or to charity. When the remaining spouse or civil partner dies, the unused IHT allowance of £325,000 is added to their allowance. If some of the allowance has been used, then only the remaining balance is passed on.

Leaving property to a family member

If you leave your primary residence to your children or grandchildren, to include step-children, then a ‘main residence nil-rate band’ is applied. This is £150,000 per person for the tax year 2019/20, rising to £175,000 as from April 2020.

This means that where your main home is gifted to your children or step-children, the total IHT allowance rises to £475,000. Any unused portion of this allowance can be passed on to a spouse or civil partner, meaning they could potentially pass on assets valued at £950,000 free of IHT, rising to £1m in April 2020.

Giving gifts

Some gifts given during your lifetime may also have the effect of reducing the amount of IHT payable. The sum of £3,000 can be given in any tax year and any unused portion of this can be carried forward to the following tax year, although not beyond a single year.

In addition, gifts of up to £250 can be given to anyone and wedding gifts can be given to children in the sum of £5,000, grandchildren of £2,500 or others of £1,000.

Larger gifts are known as potentially exempt transfers and when someone dies within seven years of making them, IHT is payable on a sliding scale.

Setting up a trust

It is possible to leave assets to your loved ones via a trust to reduce IHT payable. Professional advice should be sought to ensure your beneficiaries receive what you want them to have and that your assets are adequately protected by the trust.

Make A Free, No Obligation Enquiry Now

To speak with one of our specialist Wills & Probate Lawyers, please call us now on 0117 952 0698 or Make A Free Will Enquiry and we will discuss your current circumstances with you and explain all available options available to you.

When someone dies, the first £325,000 of their estate is exempt from Inheritance Tax (IHT).

If they don’t use all of this allowance, it can be transferred to their spouse’s or civil partner’s estate in due course. This is known as the transferable nil rate band.

This increases the exempt amount for the partner’s estate when they die, meaning they could have a potential IHT threshold of up to £650,000.

The relevant dates

The transfer of the nil rate band can be applied for if the remaining spouse or civil partner died on or after 9 October 2007.

In respect of civil partnerships, the transferable nil rate band can be claimed only if the first partner died on or after 5 December 2005, the date that the Civil Partnership Act became law.

How much nil rate band is transferable?

Where the first spouse or partner to die leaves all of their assets to the remaining spouse or partner, no IHT is payable, so the entire £325,000 can be passed to the remaining spouse, subject to the deduction of any non-exempt gifts made during the previous seven years.

How to apply to transfer the nil rate band

Two forms need to be sent to HM Revenue & Customs (HMRC). The first is the standard IHT form, while the second is the application to transfer the unused allowance. There are two options for this second form.

Form IHT217 Claim to Transfer Unused Nil Rate Bank for Excepted Estates

This form should be used when the estate of the first person to die is an excepted estate, ie. IHT was not payable, for example where the estate is worth less than £325,000 or where the assets are left to charity.

Form IHT402 Claim to Transfer Unused Nil Rate Band

Where some of the £325,000 IHT allowance was used by the estate of the first spouse to die, then only the remaining balance can be transferred to benefit the second estate. Other financial information will need to be included on the form, for example gifts made within the last seven years and pension details.

Both forms need to be signed by the estate Executor or Administrator and sent to HMRC together with the main IHT form, IHT400.

A probate lawyer will be able to work out the correct figures to be included on the form, which isn’t always straightforward, for example in the case of disposal of cash or assets by the deceased prior to their death or where gifts are made to charities, which could potentially reduce IHT liability.

Make A Free, No Obligation Enquiry Now

To speak with one of our specialist Wills & Probate Lawyers, please call us now on 0117 952 0698 or Make A Free Will Enquiry and we will discuss your current circumstances with you and explain all available options available to you.