Tenants in common clarification please

Blackavar

My wife and I have at last got round to updating our wills and want to ensure our 2 children get the maximum benefit. We currently have mirror wills, joint tenants which I think, if we also leave the house to them gives them an inheritance tax threshold jointly of £1M. The solicitor has suggested we consider changing to tenants in common which I think ensures half the value of the house goes into trust for the children on the death of the first parent to protect all the estate being used for care homes in the event this becomes necessary for the remaining parent although I believe this reduces the IHT for the children. This is all a bit confusing but I guess the tenants in common option guarantees that the children get something although if a care home is not required they may get more money. Have I understood this correctly?

Keep_pedalling

The main purpose for doing this would be to protect your children’s inheritance in the case of the surviving spouse remarrying, not to avoid care costs which unless you have a low value house, should not be a concern anyway.

Doing this does not affect IHT. On the death of the first spouse the surviving spouse becomes the beneficial owner of the whole house and legal owner of half of it, the other half is held in trust. For IHT purposes it is the beneficial ownership that counts so for the first spouse is covered by spousal exemption and on the second death the whole house is included within the estate but as none of the transferable NRBs will have been used they can still be transferred. 

What the immediate post-death interest trust does avoid is CGT in the eventual sale of the property which would apply if the share had been left directly to the children.

Blackavar

Thank you. CGT?

Keep_pedalling

Capital gains tax.

Blackavar

Of course.. Thanks