Issue 1 - June 2007 - Joint Tenants and Tenants in Common

1

Jul

2007

Many couples are recognising the benefits of splitting their homes in two and becoming Tenants in Common rather than Joint Owners. But what does it mean? This month we look at the difference between Joint Tenants and Tenants in Common.

What is it?

It is one of the only few remaining vehicles to get around the taxman and reduce your inheritance tax bill. It could also prevent you having to sell your home if you need to go into long-term care. All you need to do is change the ownership of your home from joint names to being tenants in common.

What is the difference?

If you own your home as joint tenants then both of you own the whole of the property, so when one spouse dies, the other automatically becomes the sole owner of the home.

With tenants in common, you each own a share of the property, typically split half and half.

Can this save Inheritance Tax (IHT)?

There is no IHT to pay on assets left to a partner providing you both live in the UK. BUT, when the second partner dies, those who inherit your estate (usually your children) will have to pay IHT if the estate is worth more than £300,000.

By splitting your home in two, the half belonging to the first partner to die could be passed straight onto the children. As long as this half is worth less than £300,000 then no tax will be due.

When the second partner dies, their half which is also inherited by the children would 'miss' IHT providing the estate is worth less than £300,000.

What if we're not married?

Unmarried couples have traditionally bought homes together as tenants in common so that if one partner dies, the share would be passed on according to the instructions in the Will. If you haven't made a Will in favour of your other half, then your estate could pass onto your immediate family rather than to your partner. It is important to ensure your home is jointly owned in the correct manner, so that disputes on death or if the relationship breaks down can be avoided.