Tenants in Common - effect on inheritance tax

My husband and I have recently altered our ownership of our house to Tenants in Common, in order to protect the house in the event of one of us having to go into care. We intend to alter our wills to each leave our 50% share to our daughter.

We have not made the new wills yet, because I can't seem to find out how this would affect inheritance tax.

Without changing the wills, on the first death everything goes to the surviving spouse, with no need for probate and no IHT due until the 2nd death.
Once the wills are changed, on the first death, 50% of the house goes to our daughter. If an IHT calculation has to be done at that point, I'm concerned that there would not be enough savings to pay the tax, and the surviving spouse would have to sell up and downsize to pay the bill. At the moment the IHT allowances of £325k + £175k will easily cover 50% of the estate, but in 20 years time? House values continue to rise and IHT thresholds don't!

I don't want to solve one (possible) problem and cause another.
Does anyone have any experience of this?

Comments

  • Keep_pedalling
    Keep_pedalling Posts: 16,587 Forumite
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    If you are worrying about IHT, then the reason to split the tenancy is a bit pointless as it sounds like the value of 1/2 of it will easily cover any likely care costs of the surviving spouse, however there are other reasons for doing this mainly protecting an inheritance in the event of a surviving spouse remarrying. 

    You should not attempt to DIY your will, as the way you are proposing to do them could lead to IHT on the first death and a CGT liability on the second. The normal way to do this is to leave your share to your children but with your spouse having a life interest in the property. This means your whole estate is covered by spousal exemption and any IHT falls on the survivors estate. Any gain in value in the property between the 2 deaths is also not subject to CGT.

    Make an appointment with a local solicitor ASAP.
  • Pennylane
    Pennylane Posts: 2,707 Forumite
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    If one of you has to go into care and the other one still lives in your home, that cannot be taken into account for care home fees.  Only 1 in 4 people end up in care homes anyway.  The rest remain at home.  Also, if you rely on LA rather than paying your own fees you lose your choice.  You might get put in a grotty home which I am sure you would not wish on anyone.  My friend thought she was being clever and her Mum was put in an awful home. She had to move her to a better one after a few weeks and is now paying a lot in top up fees because the LA won’t pay for the better place.

    My Mum had to sell her home to pay her care home fees but she was treated like the Queen in a lovely care home with great staff, excellent food, a lovely room and fabulous care.  I look back now and am so glad she spent her money on herself in her final years.  

    There are other pitfalls about changing to Tenants in Common.  Seen 2 solicitors in the last week about this. 😉
  • Thanks all. I was hoping to find the answers before going to the solicitor, so I'd know what I'm talking about! Not that I don't trust solicitors, but they don't always know when they're wrong!
  • Pennylane
    Pennylane Posts: 2,707 Forumite
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    dog_nanny said:
    Thanks all. I was hoping to find the answers before going to the solicitor, so I'd know what I'm talking about! Not that I don't trust solicitors, but they don't always know when they're wrong!
    Maybe you can find one who offers a free 30 min consultation before you commit.
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