Inheritance Tax on Jointly Owned Property

Tenants in common or joint tenants are two legal structures of co-ownership which have different meanings in respect of the ownership structure. 

Tenants in Common v Joint Tenants

With tenants in common, each person has a distinct share which is often linked to their financial contribution when purchasing the property. In joint tenants, if one party dies, it automatically goes to the other owner. With tenants in common, however, you can leave your share in your last will and testament.

Discount

This distinction is very important for Inheritance Tax (IHT) implications. In HMRC’s Inheritance Tax Manual it admits that it is “common practice” to apply a discount to the deceased co-owner’s share of “a jointly owned property.” The discount recognises that selling a share of a house would be much harder than selling the whole thing. The percentage reduction depends on how much each co-owner owns of the property and increases if they can carry on living there.

For example, if one joint tenant lives there and they both own 50%, then the standard reduction for IHT is 15%. On a £1m house this would reduce their £500k stake down to £425k for IHT purposes. If no one lives there then the standard reduction is 10%, meaning their £500k stake falls down to £450k.

When there are unequal shares things get more complex again. If someone who owns less than half dies then up to 20% can be knocked off its value as an IHT reduction. Whereas if someone owns more than half and dies then less can be taken off as an IHT reduction because they have greater control over it as majority owner.

Married couples and civil partners also have special provisions made for them where no discount applies at all if it forms part of their spouse’s estate.

Advice

Navigating around IHT tends to be tricky even with solicitors or tax advisers. Professional guidance is always recommended especially if the estate value nears or exceeds the Inheritance Tax threshold. Property valuations are therefore essential to work out exactly how much it’s worth and what tax implications there would be.

Our panel of valuers do these sorts of valuations all the time for probate and inheritance purposes so you can get one via us by placing a call today.