Joint Tenancy or Tenants in Common

The Probe - October 2006

The most common route of purchasing a property with a partner is joint tenancy. However, if you have a partner, you can reduce your liability to Inheritance Tax (IHT) by over £110,000 by switching the property from joint tenancy to tenants in common.

Joint Tenancy to Tenants in Common

Owning a home as 'joint tenants' means that when one partner dies the other simply assumes ownership of the whole property. However, for inheritance tax purposes, it is generally better to own your property as ‘tenants in common’, where each of you owns a stated percentage of the property – normally 50 per cent.

The next step is for each of you to make a Will, leaving your own share to your heirs. When the first spouse dies, the child or children inherit half of the house. Your offspring can then allow you to stay using their half of the property until you die or the property is sold. When the second spouse dies, the children inherit the other half of the home.

To change your ownership to tenants in common, you can either consult a solicitor or handle it yourself. One partner needs to write a letter to the other severing the joint tenancy and stating that the property will from now on be held as beneficial tenants in common in equal shares. The land registry has to be informed of the change.

The risks:

  • You have to be able to trust your heirs to allow you to live in the house. You can't make it a condition of the Will.
  • If they go bankrupt, divorce or die before you, ownership of their half of the home passes to someone else who may be less helpful!
  • If your children receive a means-tested benefit, such as income support or housing benefit, owning half of the property might stop them qualifying for benefits. Always take legal advice before embarking on this scheme.

By splitting the property in this way, you can keep a house worth well over £500,000 out of the grasp of the taxman, depending on your other assets, which can save over £200,000 in Inheritance Tax – I’m sure you would rather pass this to your children, rather than the tax man!