Joint Ownership of Land and Inheritance Tax - Everyday Law Spring 2007

01 April 2007

We have noticed that, more and more, we are asked about joint ownership of land and in particular whether a change to joint ownership as ‘tenants in common’ will save Inheritance Tax.

We suspect the new awareness that there are different ways of owning property jointly is due to increased coverage of the subject by the press. Press attention undoubtedly arises due to the increasing number of people (particularly in the South- East) who are exposed to Inheritance Tax.

What are the different ways of owning land jointly?

Land (and that includes houses flats and other dwellings as well as bare land) can be owned in joint names as ‘tenants in common’ or ‘joint tenants’. The jargon is confusing and bears no relation to the usual meaning of the word ‘tenancy’. When land is owned as joint tenants when one owner dies his or her share automatically passes to the other owner or owners no matter what his or her Will says. The other owner(s) can then deal with the property as they wish without the need for any formalities. It is a very convenient way of owning land jointly and in the past most married couples owned their homes in this way. In the days when house prices rarely exceeded the Inheritance threshold it was so much taken for granted that this was the best way for married couples to own their homes that often the alternatives weren’t seriously addressed when the purchase was made.

When land is owned as tenants in common each owner has a fixed share in the property which will pass under the terms of his or her Will. This method of ownership will often suit unmarried couples or friends or relatives who wish to make a home together but want to ensure that on their deaths their own stake will pass to persons named in their Wills rather than to the other owners. Ownership as tenants in common is often useful for those embarking on a second marriage because they can then make Wills stipulating that their new spouse will have the right to remain in the property as long as they live or wish but on the survivor’s death each party’s share will pass to their respective families.

So much for the uses of the different forms of ownership, but when clients actually raise the subject with us they are usually curious as to whether either form can be used to save Inheritance Tax. Owning a property as tenants in common will not necessarily save any Inheritance Tax. However, married couples whose joint wealth is likely to exceed the Inheritance Tax nil rate band allowance (which is currently £285,000) should consider making Wills which make use of the nil rate band allowance available to both of them with a view to achieving a saving of inheritance tax. Usually when such Wills are made it will be necessary to ensure that the home is owned by the married couple as tenants in common so that the value of the house can used to make full use of both nil rate band allowances available.

For more information please contact Nicola Hopper, Associate.
 

‹ Back

• © Furley Page LLP 2009
• | LLP
• | Terms and Conditions
• | Privacy Policy
• | Site Map
• | Accessibility