Joint Tenants to Tenants in Common - still the done thing?

getmore4less

lr1277 said:

getmore4less said:

p00hsticks said:

Mojisola said:

FirstCoffee said:

There are a few posts on here about older parents switching their property from Joint Tenants to Tenants in Common to ensure that at least half the value is protected from (potential) care home fees and can instead be left to offspring. 

It only works if they also write wills leaving their share of the property to offspring (or anyone else) - usually giving the right to the surviving spouse to remain in house/sell up and move using the capital.

I'm not aware of all the intricacies of the difference between 'legal' and 'beneficial' ownership, but there there are also potential downsides in terms of possible loss of Inheritance tax allowances if the estate is not left to the spouse, and potential CGT liabilities for the offspring if they are not also residing in the property - it's by no means cut and dried as being beneficial overall, especially if the surviving spouse doesn't end up needing to go into care (which is still true for the majority of the elderly) or have other assets which mean they end up self-funding their care anyhow.

That's where the IPDI trust comes in giving the spouse a life interest.

For the main tax purposes it is as if the spouse inherits but the assets are ring fenced.

Does this setup allow the remaining spouse to move or downsize as required? Or does the ability to sell but still maintain a life interest have to be written up in a special way?

Asset is in the trust so can stay there till the life tenant dies(or other terminal clause) trustees can allow change of property.

lr1277

getmore4less said:

lr1277 said:

getmore4less said:

p00hsticks said:

Mojisola said:

FirstCoffee said:

There are a few posts on here about older parents switching their property from Joint Tenants to Tenants in Common to ensure that at least half the value is protected from (potential) care home fees and can instead be left to offspring. 

It only works if they also write wills leaving their share of the property to offspring (or anyone else) - usually giving the right to the surviving spouse to remain in house/sell up and move using the capital.

I'm not aware of all the intricacies of the difference between 'legal' and 'beneficial' ownership, but there there are also potential downsides in terms of possible loss of Inheritance tax allowances if the estate is not left to the spouse, and potential CGT liabilities for the offspring if they are not also residing in the property - it's by no means cut and dried as being beneficial overall, especially if the surviving spouse doesn't end up needing to go into care (which is still true for the majority of the elderly) or have other assets which mean they end up self-funding their care anyhow.

That's where the IPDI trust comes in giving the spouse a life interest.

For the main tax purposes it is as if the spouse inherits but the assets are ring fenced.

Does this setup allow the remaining spouse to move or downsize as required? Or does the ability to sell but still maintain a life interest have to be written up in a special way?

Asset is in the trust so can stay there till the life tenant dies(or other terminal clause) trustees can allow change of property.

Does the life tenant have to pay rent to the Trust? I mght be confusing the issue here, but is there some kind of gift with reservation issue (if I have the term right)? And once the trust has an income, do the trustees have to complete a self assessment return for the trust and pay tax on the rental income at trust rates?

In the interests of full disclosure, I persuaded my parents to convert back to joint tenants from tenants in common as I thought it was more tax efficient and as a trustee I didn't want the hassle. However in my case, every asset and cash was put into a trust which would definitely have meant the trust paying income tax and CGT. As the trustee, I would have had to submit the self-assessment return.

I thought my parents wouldn't be able to utilise the nil-rate band (NRB) if they put their half into a trust on their death (which was how the will was set up). But I see above a poster has made a suggestion as to how it might be done, but to be frank I don't understand their suggested method.

Also I wasn't looking for an inheritance. Of course it would be nice to receive such a thing, but my parents worked hard for their money and they should live as comfortably as possible, especially if one or both needed care. I didn't want to see them in a cheap poorly run care home when for some money they could have a much better experience. My parents also said they would be happy to pay for care.

My two penneth.

getmore4less

The live trust gives the benefitial interest to the life tenant.
Beneficial interest does not require rent.
Life trust with just a property have tiny overheads.

Typically spouse life interest just have property to avoid the admin overhead.

In many cases just 1/2 the property is in the trust and the life tenant in effect owns the full property.

It gets taxed as if they did own it for IHT and CGT.

Which can be useful no CGT retains the transferable NRB can use the transferable RNRB if getting passed down to eligible beneficiary.

Nil rate band trusts became far less useful when the transferable nil rate band became available, and can now cause the loss of RNRB since that came in.

Keep_pedalling

lr1277 said:

getmore4less said:

lr1277 said:

getmore4less said:

p00hsticks said:

Mojisola said:

FirstCoffee said:

There are a few posts on here about older parents switching their property from Joint Tenants to Tenants in Common to ensure that at least half the value is protected from (potential) care home fees and can instead be left to offspring. 

It only works if they also write wills leaving their share of the property to offspring (or anyone else) - usually giving the right to the surviving spouse to remain in house/sell up and move using the capital.

I'm not aware of all the intricacies of the difference between 'legal' and 'beneficial' ownership, but there there are also potential downsides in terms of possible loss of Inheritance tax allowances if the estate is not left to the spouse, and potential CGT liabilities for the offspring if they are not also residing in the property - it's by no means cut and dried as being beneficial overall, especially if the surviving spouse doesn't end up needing to go into care (which is still true for the majority of the elderly) or have other assets which mean they end up self-funding their care anyhow.

That's where the IPDI trust comes in giving the spouse a life interest.

For the main tax purposes it is as if the spouse inherits but the assets are ring fenced.

Does this setup allow the remaining spouse to move or downsize as required? Or does the ability to sell but still maintain a life interest have to be written up in a special way?

Asset is in the trust so can stay there till the life tenant dies(or other terminal clause) trustees can allow change of property.

Does the life tenant have to pay rent to the Trust? I mght be confusing the issue here, but is there some kind of gift with reservation issue (if I have the term right)? And once the trust has an income, do the trustees have to complete a self assessment return for the trust and pay tax on the rental income at trust rates?

In the interests of full disclosure, I persuaded my parents to convert back to joint tenants from tenants in common as I thought it was more tax efficient and as a trustee I didn't want the hassle. However in my case, every asset and cash was put into a trust which would definitely have meant the trust paying income tax and CGT. As the trustee, I would have had to submit the self-assessment return.

I thought my parents wouldn't be able to utilise the nil-rate band (NRB) if they put their half into a trust on their death (which was how the will was set up). But I see above a poster has made a suggestion as to how it might be done, but to be frank I don't understand their suggested method.

Also I wasn't looking for an inheritance. Of course it would be nice to receive such a thing, but my parents worked hard for their money and they should live as comfortably as possible, especially if one or both needed care. I didn't want to see them in a cheap poorly run care home when for some money they could have a much better experience. My parents also said they would be happy to pay for care.

My two penneth.

I think you were right to undo what would have been a potentially very difficult situation. Just the house would have been simple, but from the situation you describe, the only reason for doing it now would be if they are reasonably young and there is a strong chance the surviving spouse might remarry.

FirstCoffee

Thanks for all your replies. So correct me if I'm wrong, but it sounds like the following:

(a) switching from JT to TIC is still "relatively" niche, ie. it's not something that most homeowners are doing,
(b) it hasn't yet been clamped down on in terms of funding care, but 
(c) it comes with its own set of potential issues and isn't right for everyone.

Would that be a fair assessment?

Keep_pedalling

FirstCoffee said:

Thanks for all your replies. So correct me if I'm wrong, but it sounds like the following:

(a) switching from JT to TIC is still "relatively" niche, ie. it's not something that most homeowners are doing,
(b) it hasn't yet been clamped down on in terms of funding care, but 
(c) it comes with its own set of potential issues and isn't right for everyone.

Would that be a fair assessment?

a - it is probable quite common and something a lot more people are doing than previously because a lot more people have more complex family set ups (2nd and subsequent marriages, children from more than one relationship, unmarried partners) 

b - it won’t be clamped down on for care costs because you are not deliberately depriving your self of assets. A couple with a £500k house still have £500k of assets regardless of the type of ownership.

c - it is not right for everyone (it is not for us) and yes where used inappropriately can cause unforeseen issues, although the consequences of not doing it when you should are likely to be greater, for example the children of the first to die inheriting nothing and their step siblings getting the lot