Inheritance Tax Query

overload99

We (my husband and I) are in the process of buying a new family home and we've been asked if we want it registered as Joint Tenants or Tenants in Common. The property we are buying is £630k which is only just below the Inheritance Tax threshold for a couple. If we choose Joint Tenants and one of us dies, would the other then be liable to pay Inheritance Tax? Would we be better choosing Tenants in Common and leaving our share in Trust to our two young children?

Any advice would be greatly appreciated.

nom_de_plume

As joint tenants the property passes to the surviving owner automatically and outside of the estate so it would not be taken onto consideration for IHT calculations.

As tenants in common the share owned would be classed as a part of the deceased estate although, if left to the surviving spouse would be exempt from iht due to spousal exemption.

overload99

Thank you. So does that mean it doesn't really matter whether we choose Joint Tenants or Tenants in Common as either way, the spousal exemption would apply?

Mojisola

ruthieb77 wrote: »

Thank you. So does that mean it doesn't really matter whether we choose Joint Tenants or Tenants in Common as either way, the spousal exemption would apply?

Yes. It you want the survivor to own the whole property, own it as joint tenants.

zagfles

nom_de_plume wrote: »

As joint tenants the property passes to the surviving owner automatically and outside of the estate so it would not be taken onto consideration for IHT calculations.

This is wrong. It will be outside the estate as far as the will is concerned, but it will definitely count as far as IHT is concerned. However - the spousal exemption will apply as you say below...

As tenants in common the share owned would be classed as a part of the deceased estate although, if left to the surviving spouse would be exempt from iht due to spousal exemption.

zagfles

ruthieb77 wrote: »

Thank you. So does that mean it doesn't really matter whether we choose Joint Tenants or Tenants in Common as either way, the spousal exemption would apply?

If you own as tenants in common then it would pass by will (or intestacy) so make sure you have a will or understand the intestacy rules. Otherwise your spouse might not get it all.

If you own as joint tenants it automatically goes to the survivor and is easier administratively.

Sometimes people own as tenants in common so they can leave their share to their children and perhaps avoid care home fees on the whole value of the house, but there are all sorts of pitfalls to consider, you'd need advice or to look into it carefully.

Cardew

ruthieb77 wrote: »

The property we are buying is £630k which is only just below the Inheritance Tax threshold for a couple.


Would we be better choosing Tenants in Common and leaving our share in Trust to our two young children?

Any advice would be greatly appreciated.

Are you aware of the Residence Nil Rate Band(RNRB)?



If you leave the house to your children you get an extra £125k exemption from IHT making the joint total £900k. In April this rises to 950k and in april next year(2020) it rises to £1 million: below is one of many articles on RNRB



https://www.telegraph.co.uk/financial-services/investments/inheritance-tax/inheriting-a-house-from-your-parents/

overload99

Hadn't heard of RNRB no, so thank you. That's interesting.

Mojisola

Cardew wrote: »

Are you aware of the Residence Nil Rate Band(RNRB)?

ruthieb77 wrote: »

Hadn't heard of RNRB no, so thank you. That's interesting.

What do your wills say - partner to inherit, children to inherit on second death?

That would make use of the RNRB.

overload99

Our wills currently say partner to inherit with the children to inherit upon second death. We are considering changing that to say that the children inherit everything in Trust. Would that be better?

Keep_pedalling

ruthieb77 wrote: »

Our wills currently say partner to inherit with the children to inherit upon second death. We are considering changing that to say that the children inherit everything in Trust. Would that be better?

Bearing in mind you will be able to leave at least £950k tax free between you (£1M if st least one of your survives beyond April 2020) a trust is probably not the route to go down. If you have assets that are likely to take you into IHT territory then you should be looking at gifting some of your more liquid assets to your children in your lifetime.