Inheritance tax on jointly owned property
Written by Ray Coman
In many cases, inheritance tax is not of immediate concern to a taxpayer when entering arrangements, such as the joint ownership of property. Nonetheless, measures could be taken to prevent the burden of tax upon our beneficiaries that could have been avoided with prudent tax planning.
Transfers between spouses are exempt from inheritance tax (IHT). In most cases property is jointly owned by a married couple. Jointly owned property is owned entirely by both spouses and automatically transfers to the surviving spouse on death.
By contrast, where a property is owned as tenants in common each spouse owns their share of the property outright and that share is transferred according to your will, or under rules of intestacy if there is no will.
The value of an estate up to the nil rate band (current £325,000) is free of IHT. Thereafter the estate is subject to IHT, usually at 40%. Any nil rate band which is not which is not used up will be eventually be available to the surviving spouse. Consequently, if no nil rate band is used, because the jointly owned property transfer entirely to the surviving spouse, the combined nil rate band will be available eventually to reduce inheritance tax on the estate of the surviving spouse.
However, for jointly owned property, the opportunity to transfer assets to other beneficiaries tax free will be lost. By contrast, inheritance tax savings could be immediately available under an arrangement between spouses to own property as tenants in common.
When examining scenarios involving the joint ownership of property, Coman & Co. are in a position to review all taxes which may impact decision making. Please contact us to discuss your requirements further.