Guide Menu

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.

Comments  

#2 Ray Coman, FCCA, CTA 2021-11-14 14:13
Dear Terence,

Regardless of whether you are married you would only be subject to inheritance tax on your portion of the estate. For a married couple, jointly owned property is usually owned 50:50. It is possible to change the ownership to tenant in common so that one half does not pass to your ex-wife by right of survivorship.

Usually it is a surveyor rather than a solicitor who values property. Gifts made both during your lifetime and on your death to a spouse are exempt from inheritance tax.

The inheritance tax exemption still applies until you are formally divorced, but the capital gains tax rules are more complex. Since you can only have one property exempt from tax (under PPR rules) you are likely facing a CGT liability.
Quote
#1 Terence Lloyd 2021-11-12 14:24
My wife and I have separated and live in separate properties that we jointly own. We are both concerned that this could lead to the survivor having to pay inheritance tax as an individual on the total value of both properties. If this is the case should we employ a solicitor to separate the ownership and if this is so can you provide an estimate of your cost to carry this out?
Both properties are owned outright. One is a four bedroom house valued at approx 3.2k the other a 3 bedroom bungalow valued at approximately 2.8k
Thank you
Quote

Add comment


Simple situations. Complex situations. If it goes on a Tax Return we deal with it. Contact us for a free, initial meeting.

Call us!