joint tenancies -vs- tenancies in common; a large estate

[silvercloud]

i understand that in most cases properties are held as tenancies in common to take advantage of the nil rate band of £263k. however when the assets involve are considerable (several millions), to ensure a smooth and most tax-efficient transfer from husband to wife, should this still be the case or should the majority of assets (properties) be held as joint tenancies? a discretionary trust has already been set up for the children. my husband's will is dated prior to our 10 year marriage and i have yet to write one. i know - what a terrible state of affairs. all to be sorted soon, i hope.

[deanshepherd]

The main difference between a joint tenancy and tenants in common is that on the death of a joint tenant, the property passes automatically to the other tenant and does not form part of the deceased's estate. With the death of a tenant in common, the share of ownership passes to the estate to be distributed according to the will.

If the will passes the property to the spouse then this is exempt from IHT anyway, so prima facie there is not much difference.

However, given the value of the assets involved, there are substantial IHT planning opportunities for which you should seek professional advice and certainly update those wills.


Dean Shepherd
dean@mmi-online.co.uk
www.mmi-online.co.uk
Surrey Accountants

[kirstie.williamson@a]

If your husband wrote his will before you married then it is invalid now anyway. Wills cease to be effective once the testator has married and a new will must be drafted.

Assuming you have children then at the moment your joint estate would be subject to the laws of intestacy so the surviving spouse would get £125,000 + personal chattels + life interest in half of residue. The rest would go to your children, other than properties held as joint tenants.

Properties held as joint tenants would automatically devolve to the surviving owner but if held as tenants-in-common then will be distributed as described above.

A review of your wills and property ownership arrangements should be undertaken as part of a wider estate planning exercise.

KW

[Anthony Nixon]

In these circumstances there is all the more reason for holding properties as tenants in common provided you also get your wills in the right form. This can enable all the assets of the first spouse to die to be free of IHT.

The wills should include not only a discretionary trust of the nil rate band (currently £275,000) but a second flexible trust of the rest of the assets owned by the first spouse to die, including half shares of all properties owned as tenant in common. The survivor is initially entitled to the income from these assets.

The survivorÂ’s initial right to the income of the second trust means that, for the purposes of IHT, she is treated as its owner. There is no IHT to pay on the first death.

Soon after the first death, the trustees of the deceased spouseÂ’s Will use a power included in the Will to bring to an end the survivorÂ’s right to income. This is done in a way that ensures there is no immediate IHT charge. Although she no longer has the right to the income, the survivor can still benefit from the second trust.

At the point the survivor’s right to income from the second trust ends she ceases to own it for IHT. But she has not made a gift. The trustees have exercised a power in her late spouse’s Will. There is no reservation of benefit. Nor does the tax charge on “pre-owned assets” have any impact.

If the survivor lives more than seven years after her right to income ends all her late spouseÂ’s assets will be free of IHT.

Anthony Nixon
Partner
Lester Aldridge Solicitors
Alleyn House
Carlton Crescent
Southampton
SO15 2EU

Tel: 023 8082 0442
Mob: 07881 920742
Fax: 023 8082 0441
Email: anthony.nixon@la-law.com
Website:www.lester-aldridge.com