Tenancy Change and IHT

Dilbert_Investor

My dad is thinking about changing the ownership of their property from a Joint Tenancy to Tenants in Common and altering his will in favour of the children (Mum is in care now and her Will, which cannot be changed, leaves everything to dad and then the children should she survive him.

Are there any IHT implications for either them, or the children, depending on who passes first?

Thanks in advance as it’s a complex area and a difficult one to discuss.

shiraz99

IHT will be dealt with when you deal with the estate of the last surviving spouse and shouldn't be affected by severing the tenancy. I'm assuming he's doing this to protect his share of the property from care home costs?

Dilbert_Investor

Thanks.  Yes, to protect half the value of the home.

I read something about passing on ‘unused’ individual tax-free allowance to spouses to provide greater relief on the estate of the surviving spouse.  I wasn’t sure this would since apply if the tenancy changed and mum passed first?

Keep_pedalling

The only way this cause additional IHT is if they have unequal assets and your father died first. For instance if the house was worth £800k and your father had £200k in savings and your mother had no savings then as it stands there would be no IHT on the first death as spousal exemption applies and none on the second as £1M falls within the 2 sets of NRB and residential NRBs. However if the tenancy is split and father leaves everything to his children his exemptions would be exceeded by £100k so if he died first then there would be £40k IHT to pay but nothing is he died second.

Dilbert_Investor

Thanks, So if my fathers total estate is £500k or less there would no IHT to pay if he died first, and anything over that would be charged at 40% by severing the tenancy?

msb1234

Just out of curiosity, does your mum still have capacity? If not, I wonder if he can change the tenancy as she wouldn’t be be able to agree to it.

shiraz99

msb1234 said:

Just out of curiosity, does your mum still have capacity? If not, I wonder if he can change the tenancy as she wouldn’t be be able to agree to it.

Consent is not required to sever a joint tenancy, however the other party would have to be served notice of the severance.

msb1234

shiraz99 said:

msb1234 said:

Just out of curiosity, does your mum still have capacity? If not, I wonder if he can change the tenancy as she wouldn’t be be able to agree to it.

Consent is not required to sever a joint tenancy, however the other party would have to be served notice of the severance.

Interesting. Might it be seen as possible deprivation of assets though? 

Keep_pedalling

msb1234 said:

shiraz99 said:

msb1234 said:

Just out of curiosity, does your mum still have capacity? If not, I wonder if he can change the tenancy as she wouldn’t be be able to agree to it.

Consent is not required to sever a joint tenancy, however the other party would have to be served notice of the severance.

Interesting. Might it be seen as possible deprivation of assets though? 

That is not the case, the OPs mother is not being deprived of anything. This is no different to splitting joint savings to separate accounts. Both end up with exactly the same assets but those assets no longer automatically go to the survivor after the first death.

Dilbert_Investor

The advice he had was that consent from my Mum wasn’t required (just notice) and that deprivation of assets wouldn’t apply as Mums share of the property isn’t being effected.

On IHT just to clarify - if my Mum passes first, her estate goes to Dad (as per her Will] with the IHT spouse exemption and her allowances move to him too.  

However, if Dad passes first and leaves his estate to the childern only his allowances count and anything excess 500k would be taxed?

Keep_pedalling

Dilbert_Investor said:

The advice he had was that consent from my Mum wasn’t required (just notice) and that deprivation of assets wouldn’t apply as Mums share of the property isn’t being effected.

On IHT just to clarify - if my Mum passes first, her estate goes to Dad (as per her Will] with the IHT spouse exemption and her allowances move to him too.  

However, if Dad passes first and leaves his estate to the childern only his allowances count and anything excess 500k would be taxed?

If it wasn’t possible to split a tenancy without both party’s consent it would cause massive problems where one party has lost mental capacity or where people in relationship that has broken down and are at loggerheads.

Yes if your mother dies first her estate will be exempt, but the other way round tax would be payable on anything over £500k. If he does have more in sole assets and it is not all locked up in the house, then he should consider some IHT reduction planning. 

Does anyone have power of attorney for your mother? If not you should look at obtaining deputyship. As it stands if your father wanted to do something like downsize he will be stymied as that would require her sign off.