IHT VALUATION OF AN ESTATE FOR JOINTLY OWNED PROPERTY

KallyM5

If parents and 2 children own the main home as joint tenants and one passes away what value is included to calculate the estate of the deceased or does the property just pass on to the remaining joint tenants without any IHT consequences. Thank you

Keep_pedalling

For IHT purposes his share is treated as taxable estate. The portion passing to his spouse is exempt, the portion passing to his children will use up some of his NRB, and some of his RNRB if his share is worth more than £325k.

it would probably be better if the tenancy is converted to tenants in common with appropriate wills being put in place for all four of you. 

KallyM5

Thank you. Another question.  Even if it has been over 7 years since the names were added as joint tenants do you still need to include his share as taxable estate or would this only apply with tenants in common situation.

Keep_pedalling

KallyM5 said:

Thank you. Another question.  Even if it has been over 7 years since the names were added as joint tenants do you still need to include his share as taxable estate or would this only apply with tenants in common situation.

Assuming your parents are the sole occupiers of the house and they gifted half the house to you and your sibling, then the 7 year rule does not apply as it is a gift with reservation of benefit, so for IHT purposes half of the house falls inside his estate not 25%. It does not matter how the house is owned as far as IHT is concerned. 

Are both your parents still alive? What is the value of the property?

KallyM5

Both parents alive.  Property value £1.5m.  

Keep_pedalling

KallyM5 said:

Both parents alive.  Property value £1.5m.  

If you don’t live with your parents then as it stands there is a significant IHT liability on their estates because, unless they are paying you full market rent for your share of the property the 7 year rule does not apply. For IHT purposes the estate of the first to die is going to be liable for a substantial amount of IHT on the house alone because only a small portion is going to be subject to spousal exemption and the rest will use up all their NRB and RNRB. IHT on the first death can easily be avoided by severing the tenancy and your parents having wills in place that leave their share to the surviving spouse. 

If this was done to save IHT the plan was seriously flawed as it saves nothing and if the house is sold it also lumbers you with a CGT liability on top. 

Bookworm105

Keep_pedalling said:

KallyM5 said:

Both parents alive.  Property value £1.5m.  

 IHT on the first death can easily be avoided by severing the tenancy and your parents having wills in place that leave their share to the surviving spouse. 

If this was done to save IHT the plan was seriously flawed as it saves nothing and if the house is sold it also lumbers you with a CGT liability on top. 

by severing he means all 4 remain as owners, but as tenants in common.
If ownership reverts to parents only that would trigger a CGT disposal and make CGT payable now by the 2 children despite the fact no cash would change hands on the "sale" of their shares back to parents. The children are now stuck with a CGT liability they cannot cancel, but the IHT planning can certainly be improved as keep pedalling suggests