Inheritance Tax Question - Tenants in common

[boxster9]

Just trying to find an answer to the following scenario, but can't seem to find a definitive answer.

The question is with regards to inheritance tax liability when a father and son are both tenants in common(i.e both names on the mortgage) on the family home. What would happen if the father passsed away? .Would there be any inheritance tax to pay especially if the intention was for the property to pass on to the son on death? can the son continue to pay off the mortgage with full ownership passing on to him once the mortgge has been cleared.

thanks for any advice on this.

[Piglet]

I'll have to search the back of my brain for probate info but just as a first point for you to clarify. The father and son would not be tenants in common just because their names are both on the deeds. They could equally be joint tenants, it depends what they elected for when they purchased.

What does the Land Registry documentation say? You can get a copy of the filed entry from the Land Registry online for £3 paid on a debit card.

[boxster9]

Piglet said:

but The father and son would not be tenants in common just because their names are both on the deeds. They could equally be joint tenants, it depends what they elected for when they purchased.

what are the main differences between the two?

Is it possible to change one to the other , if it made the inheritance tax aspect more favourable?

cheers

[Eric Mc]

Tolley's Tax Guide says:

Joint Tenant
An "interest" in a joint tenancy means that this interest is automatically transferred to the other joint tenant on the death of the first tenant but it still forms part of your estate for IHT purposes. In other words, all parties in the ownership have legal rights over the entire property and any one party to the ownership cannot dispose of his share without the agreement of the others.

Tenant in Common
Each person has a separate share in the property which may be disposed of as he wishes. This means that it counts as his own property for all purposes (including IHT). In other words, each owner can dispose of their share of the property without the consent of the other owners.

[Piglet]

Right I'm doing this from memory and it's early...

Joint tenants own the whole of the property between them so if one dies their share goes to the other. I think that inheritance tax applies subject to the value of the estate (check this bit)

Tenants in common own a share each so each owns (say) their own half (might not be half they could have chosen differently) and on the death of one their share is transferred in line with their will or in line with the laws of intestacy if there is no will.

So I think you said it was father and son....if they hold as tenants in common and father dies then his share would go as set out in his will or if no will to his wife or if no wife then split equally between all of his children.

If they hold as joint tenants the share transfers to the son and actually the more I think about it might not be subject to IHT? Dunno, check here http://search.hmrc.gov.uk/kbroker/inldrev/inldrev/...

If they hold as joint tenants and wish to change this then either party can give notice to the other that they wish to sever their joint tenancy and hold as tenants in common, I don't think it has to be agreed by the other but I doubt it can be done after the death of one party (if that's what has happened)

Normal provisos apply to this vague advice, IAAL but this is not my area of law....

Good luck!

(edited to add: I cross posted with Eric, believe him on the tax stuff not me...)

Edited by Piglet on Wednesday 21st January 07:40

[Jespin]

Providing it is tenants in common, the dad's share of the property would either pass to wifey free of IHT or pass to someone else as a chargeable transfer, therefore using up some of his nil-rate band (providing he's still got some left at that point). It would be chargeable to IHT, whether any is paid or not is much more to do with the remainder of his estate. There would more than likely be a CGT liability though.

[boxster9]

thanks for all the advice here.

So am I right in thinking that with joint tenants, there is no inheritance tax to pay when the father dies and would automatically pass his part to the son? Is this one way by which families are able to pass down famiy homes to their kids without the IHT burden.

[Piglet]

I don't think so, Eric's quote from Tolley is that it DOES form part of the estate for IHT purposes so it would be subject to Inheritance Tax.

[Eric Mc]

IHT doesn't differentiate between the two.

Transfers of the deceased's share of the property to the other "tenants" or alternative benficiaries will still be subject to IHT.

Transfers between spouses are always IHT exempt.

[Percy Flage]

So, if he enters into a civil partnership with his dad.....

Edited for early morning typos

Edited by Percy Flage on Friday 23 January 08:02

[Eric Mc]

Percy Flage said:

So, if he enters into a civil partnership with his dad.....

Edited for early morning typos

Edited by Percy Flage on Friday 23 January 08:02

He might escape IHT - but end up in jail.

[Piglet]

Eric Mc said:

Percy Flage said:

So, if he enters into a civil partnership with his dad.....

Edited for early morning typos

Edited by Percy Flage on Friday 23 January 08:02

He might escape IHT - but end up in jail.

On a serious note there is something similar being campaigned for I think. Not to short circuit IHT down family lines but to protect siblings and friends who have chosen to live together in later life (not as a couple) and as it stands at the moment after the first dies the second could (subject to values obviously) pick up an IHT liability to stay in their house.