Does being a Tenant in Common incur more IHT charges than being a Joint Owner on the 2nd Death?

viking1

A few years ago my wife & I changed to Tenants in Common to protect half the home for our son in case of possible future care home fees for the second successor. We also changed our wills by solicitor to leave on first death half the home to second successor & half to our son. The Land Registry were also informed. I am now concerned by doing this on the first death that we may be using up the first IHT allowance unnecessarily having read something online?  At present our home is worth £220k & our savings & investments are split as follows 
Joint £12k ,Person A £310K  Person B £310. I understand as we are married as things stand  there would be no IHT liability for the second successor?  Would our son still be entitled to the rolled over allowed amount of £650k for savings investments & possessions plus the  remaining £175k home value allowance of the second successor & as long as at the time of second death the assets remain as they are now there would still be no IHT liability? 

JGB1955

I'm interested in the answer to this one too.... is the amount transferred upon first death 50% of the value of the house at that time?  i.e. in this scenario currently £110K?

naedanger

I believe it won't make any difference. You are using up you IHT allowance at the same rate as you distributing your estate to your son.

Assuming nothing is left to the son, after first death then remaining person has assets of £12k + £310k + £310k + £220k gives £852k. Their IHT allowance is their NRB of £325k plus £325k transferred NRB plus £175k RNRB plus £45k transferred RNRB gives £870k of allowance. So no IHT to pay and headroom of £18k - so not that much.

If instead on the first death half the property (value £110,000) is left to your son then £110,000 of the residence nil rate band will be used up but the amount of assets remaining with the survivior will also be reduced by this amount. (So if person A died first, after their death person B would have £310k + £310k + £12K plus half a property with value £110k gives £742k. There IHT allowance is £325k + £325k + £110k gives £760k. There is headroom of £760k - £742k = £18k.


Having said that even if you didn't leave half the house to your son it is probably very unlikely that all the other assets will be used up in care home costs. 

Marcon

viking1 said:

A few years ago my wife & I changed to Tenants in Common to protect half the home for our son in case of possible future care home fees for the second successor. 

In which case the local authority would almost certainly see it as deliberate deprivation of assets. See https://money.radiotimes.com/retirement/hold-onto-your-house/

You may not have given your house away, but Paul Lewis's comments still apply, viz:

Some firms make a lot of money selling schemes to “protect” homes. They cannot work because once you have had that thought of taking some action to get more public money, any scheme is scuppered, even if the home is put into a trust. Save your money. And remember if you, your spouse or partner, or a relative over 60 or severely disabled remains in the property, its value is ignored.

Too many parents are more concerned with leaving cash to their children, without asking those children first which they'd prefer: cash in the bank or a parent ending their days with the possibility of at least some choice of where those days are spent.

getmore4less

The usual solution is IPDI trust.

Tenants in common

Spouse gets the right to live in the property on first death 

Care fees cannot touch the bit in trust

For all tax it's as if the spouse inherited the property.

Preservation of both transferred nil rate band and no CGT.

getmore4less

Severence of joint tenancy to tenants in common is not a deprivation of assets.

Keep_pedalling

Marcon said:

viking1 said:

A few years ago my wife & I changed to Tenants in Common to protect half the home for our son in case of possible future care home fees for the second successor. 

In which case the local authority would almost certainly see it as deliberate deprivation of assets. See https://money.radiotimes.com/retirement/hold-onto-your-house/

You may not have given your house away, but Paul Lewis's comments still apply, viz:

This is not true. This is a fairly common thing to do, and you are not actually reducing your assets at the time of changing the form of ownership, you are simply changing how those assets are divided at some point in the future when the first person dies. It also protect your children’s inheritance in the case of the surviving partner remarrying. If your house has a high value this is a pointless exercise in saving care costs as the chances of eating up more than half its value are slim. It also protects nothing if both end up in residential care at the same time and the house has to be sold to pay for it.

As far as the original question is concerned it should make no difference to IHT or leave the beneficiaries with a CGT liability providing the wills also provide the survivor with a life interest in the property.