When meeting with clients to discuss their succession planning, many cannot recall whether their property is held jointly as joint tenants or jointly as tenants in common.
The distinction is that with properties held as joint tenants, both parties own the “whole” of the property. On the death of the first joint tenant, the property will pass automatically to the surviving joint tenant, regardless of the terms of the deceased joint tenant’s Will or the intestacy rules.
In contrast, with properties held as tenants in common, both parties own a distinct “share” in the property – this can be 50-50 or any other split, which would usually be recorded in a Declaration of Trust. On the death of the first tenant in common, his or her share in the property will pass in accordance with his or her Will or intestacy. This gives some scope for Inheritance Tax planning.
It is possible to check how a property is owned at the Land Registry, for a small fee. It is also possible to change how your property is held, if you wish.
There are a number of estate planning opportunities, as well as practical matters, to consider when it comes to deciding how your property should be held and in putting that into effect.
For example, a property held as joint tenants which passes automatically to the surviving spouse on the first death, will be exempt from Inheritance Tax as spouse exemption will apply. It will also pass without the need for a Grant of Probate.
A property held as tenants in common may, of course, still pass to the surviving spouse on the first death, if the deceased spouse left his or her share of the property to the surviving spouse in his or her Will, in which case spouse exemption would still apply.
However, Wills could be drawn so that on the death of the first spouse to die, he or she leaves his or her share (or a percentage of it) to a trust for the benefit of the surviving spouse for the rest of his or her lifetime (in which case spouse exemption may still apply depending on the terms of the trust) or to another individual(s), either outright or into a trust. There may be many potential benefits of doing this such as keeping value out of the surviving spouses estate to reduce the Inheritance Tax liability on his or her death, to keep the value of the estates such that the residence nil rate band can be claimed and in providing certainty as to where the share passes after the surviving spouses death.
There are many other factors to consider when it comes to how best to leave property on death and the above matters should be explored as part of a wider discussion about tax and estate planning as a whole.