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.

Contact us

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.

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.