Inheritance Tax and "Tennants in Common"

spud312r

Looking at changing our deeds from joint tennants to "tennants in common" and updating our wills to reflect this, to try and reduce any IHT when one of us passes away etc.

This i can see, can now be done online these days for a reasonable fee (£25), but i want to go a bit further and set up our wills so the first half goes to a 'nil rate band discretionary trust' with the children as beneficiaries etc and removing the councils mean test if one of use has to go into long term care.

Has anbody done this and can they give me any advise on where best to start ??

CLAPTON

why will it reduce IHT?

spud312r

CLAPTON wrote: »

why will it reduce IHT?

If you own your home as joint tenants then both of you own the whole of the property, so when one partner dies, the other automatically becomes the sole owner of the home. With tenants in common, you each own a share of the property, typically split half and half.
There is no inheritance tax to pay on assets willed between husband and wife, so the surviving partner does not have to pay IHT. But when the second partner dies, those who inherit the estate, typically the children, would have to pay IHT. IHT is charged at 40% on any assets over the nil-rate band. (In 2010/11 this stood at £325,000 for individuals and £650,000 for married couples and civil partners.)


Other joint owners can still benefit from tenants in common. By splitting the home in two, the half belonging to the first partner to die could be passed straight onto their children or any designated beneficiary.
As long as the half is worth less than £325,000 (2010/11 rate) then no tax will be due. When the second partner dies, their half, which is also inherited by children, may also be below the threshold, so again would miss IHT.
Help with cutting your inheritance tax bill


Or somthing like that ..

nomunnofun

I think that more thought needs to be given to this e.g. if held 'tenants in common' and willed to your children, this will reduce the unused IHT threshold that is transferrable to your wife and available when she dies.

CLAPTON

spud312r wrote: »

If you own your home as joint tenants then both of you own the whole of the property, so when one partner dies, the other automatically becomes the sole owner of the home. With tenants in common, you each own a share of the property, typically split half and half.
There is no inheritance tax to pay on assets willed between husband and wife, so the surviving partner does not have to pay IHT. But when the second partner dies, those who inherit the estate, typically the children, would have to pay IHT. IHT is charged at 40% on any assets over the nil-rate band. (In 2010/11 this stood at £325,000 for individuals and £650,000 for married couples and civil partners.)


Other joint owners can still benefit from tenants in common. By splitting the home in two, the half belonging to the first partner to die could be passed straight onto their children or any designated beneficiary.
As long as the half is worth less than £325,000 (2010/11 rate) then no tax will be due. When the second partner dies, their half, which is also inherited by children, may also be below the threshold, so again would miss IHT.
Help with cutting your inheritance tax bill


Or somthing like that ..

If your half of the estate is less that 3250,000 and the other half is less than 3250,000 then the total is les than 650,000 so no IHT would be paid in either situation

and NO it is not 'something like that' is has to be EXACTLY like that.

getmore4less

spud312r wrote: »

(In 2010/11 this stood at £325,000 for individuals and £650,000 for married couples and civil partners.)
.... Or somthing like that ..

Read up on how the transferable nill rate band works.

if you transfer away from the spouse that value of the nillrate band goes with it so it is tax neutral.

what you do do is take the asset way from the estate for means tested and potential CGT if the valee increases but also open it to CGT to the non resident benifitiaries.

xylophone

Have a look at this article
http://www.thisismoney.co.uk/money/news/article-1594984/Tenants-in-common.html

holly_hobby

Transfer of unused spousal nil rate band, is done so on 2nd death (ie 1st spouse already died), and is done so if it is an exempt estate (ie total net value is below 650k), by the administrators of the surviving spouse's estate via form IHT217.

Its only 650k combined IF, none of the nil rate band from the 1st decd spouse had been used prior to death. So it may be a lesser sum dependant upon previous unexpired PETs and lifetime gifts etc made before their (and the present spouse's re their allowance) death, with the permitted amount for transfer worked out not as the remaining residue, but as a surviving percentage of the 1st decds nil rate band. If 100% tsf is not available or the estate exceeds 650k nil rate band, the estate is not classed as exempt, and form IHT400 is submitted to HMRC.

Its important to note that unused spousal nil rate band tsf is NOT automatic, it must be applied for with HMRC by the estate administrator on death of the 2nd spouse.

If the couple ARE NOT married or civil partners, each only have benefit of the individuals nil rate band thresthold, with NO transfer of the decd's partners unused nil rate band - so forward planning will be very beneficial if the individuals share of the net estate is likely to exceed the nil rate band on death.

Hope this helps

Holly

spud312r

wow its sounds very complicated...

holly_hobby

Can be, but you just need to engage a solicitor/HNW adviser to assist.

IHT etc is only simple when you know how, so leave it to the profs and you'll be confident that you've got it right for you and your requirements, first time !

Good luck

Holly x

System

CLAPTON wrote: »

If your half of the estate is less that 3250,000 and the other half is less than 3250,000 then the total is les than 650,000 so no IHT would be paid in either situation

and NO it is not 'something like that' is has to be EXACTLY like that.

No, EXACTLY like £325,000 !