One of the simplest pieces of advice I give to my homeowner clients, day in and day out, is about holding their properties as tenants in common.
But what does this mean? This article aims to explain the legal terminology of tenants in common in plain English and how it could benefit you.
How tenants in common works
Most couples own their homes as joint tenants, meaning they both own the whole home. Holding the property as tenants in common means that each own a share of the property, either a percentage or half each. This protects the agreed share for couples who have put unequal deposits into a property. If parents are gifting deposits to their children, it is also a way of easing fears in case of a break-up or death.
In the case of tenants in common, one partner can leave their share of the property on death whilst allowing the other partner to continue living there, passing the remaining share on death. It can also prevent your home being sold in the event you need to go into long term care.
There is no Inheritance Tax (IHT) for assets left in a Will to their spouse – in other words the surviving partner doesn’t have to pay IHT. After the remaining partner dies, the beneficiaries of their estate, usually the children, do have to pay IHT.
The rising cost of houses means that one property alone can mean the estate is over the IHT threshold. If the house is owned as joint tenants, both own the whole property. If one partner dies, the other automatically becomes the sole owner of the home. In the case of tenants in common each person owns a share of the house, usually split half and half.
Joint owners can split their home in two, therefore benefiting from tenants in common. By doing so, the half belonging to the person who passes away first, would be inherited by the beneficiaries immediately.
Provided the half is worth less than £325,000 – the current IHT threshold, no tax will be due. When the remaining partner dies, their half, inherited by the same children, could be under the threshold which again would mean no IHT is due.
Making it happen
You’ll need to inform Land Registry of the split and also write to each other to specify your intentions of the split.