IHT on Family Home

[Gazzer]

If a family home is owned as 'joint tenants' by husband and wife so that the property will transfer into the name of the surviving spouse, does any percentage of the value of the house form part of the deceased parties estate? If it does form part of the estate, what happens if the family home is worth in excess of £500,000 (Say £1,000,000),would the surviving spouse have to sell the house to pay the IHT if the money was not available from other sources?

[Anthony Nixon]

If husband and wife are joint tenants the whole property automatically passes to the survivor on the death of the first to die. Since there is no inheritance tax betwen husbband and wife there is never a need for the survivor to pay inheritance tax.

If a married couple own a valuable property, however, it will usually be sensible to "sever" the joint tenancy with a view to saving inheritance tax on the second death. The first to die can make a gift of up to the tax threshold to make use of the amount he can give away free of tax.

If the property is worth say £1million or more it is worth including more complex trusts in the couple's wills in order to maximise tax saving.

Anthony Nixon ATII
Associate Solicitor
Lester Aldridge Solicitors
Russell House
Oxford Road
BOURNEMOUTH BH8 8EX

Direct Line: + 44 (0)1202 786236
E-mail: anthony.nixon@LA-Law.com
Website: http://www.lesteraldridge.com

[Gazzer]

Do you know if this is also the case if one of the spouses is non-domiciled?

[Taxbar]

Dear Gazzer,

If both Spouses are Non-Domiciled, then at present the share of the home passing on death will be exempt from UK Inheritance Tax. This will also apply if the surving spouse is Deemed Domiciled for Inheritance Tax( that is broadly tax resident in the UK for 17 out of the last 20 tax years.)

It may be necessary to prove the Deceased's Domicle at death and an Inland Revenue account may have to be filed. At this point the Capital Taxes Office (the division of the Inland Revenue dealing with Inheritance Tax issues may seek to establish the Domicile of the deceased at death and that of the surviving spouse, to satisfy themselves that the gift is in fact exempt.

If the surviving Spouse is Non-Domiciled (and not Deemed Domiciled either,) but the deceased was UK Domiciled; then there may be a charge to UK Inheritance Tax on death.

A Non-Domiciled spouse inheriting assets from a Domiciled one can receive the NIL Band (Currently £255,000,providing it has not been used up on lifetime gifts in the 7 years before death) plus £55,000.
Assuming no lifetime gifts, that gives £310,000 of assets before Inheritance Tax will be chargeable at 40%.

There are of course solutions that can be followed and the first step maybe to sever the joint tenancy, so that the home is held as tenants in common.Then, depending on the value of the property the use of a trust might be advisable.

Daniel M Feingold
Barrister (NP)
Strategic Tax Planning
Treen House
72 Park Road Prestwich
Manchester.
Tel: 0161 720 7244
e-mail: sedrate@easynet.co.uk