Wealth questions - What IHT is there on joint tenancy?

My wife and I are joint tenants with our daughter in her main property. What would happen to this stake – and how would it be taxed – on the death of the first of us oldies? Our estates are likely to be in excess of the £325,000 inheritance tax allowance. Would it make sense to switch to a tenants-in-common arrangement?

Charlie Tee, solicitor at law firm Withers, says that, under a joint tenancy arrangement, the death of a joint tenant results in that tenant’s share of the property automatically passing to the other joint tenants – irrespective of the terms of any will or intestacy.

So with this property – owned by your daughter, you, and your wife – the death of you or your wife would mean the two survivors become owners of all the property as joint tenants.

Then, when the survivor of you or your wife subsequently died, and assuming that your daughter has herself survived, she would own the entire property outright, regardless of any provision made in your wills.

The transfer of the shares would be subject to inheritance tax (IHT) rules. So, if you died first, then the half of your share that would effectively pass to your wife should benefit from the spouse exemption and not be subject to IHT. But the half that passed to your daughter would be potentially liable to IHT, depending on the size of your estate.

Subject to will provisions and the value of your interest in the property, in practice there might be no tax to pay. If, under your will, you left everything to your wife, then there would be no IHT on those bequests (because of the spouse exemption) and your nil-rate band (the £325,000 that can currently pass IHT-free to someone other than your wife) would be available to cover your share of the property that went to your daughter.

Provided you have not made other gifts in your will, or in the seven years before death, that attract IHT, and the value of your third of the property is less than £325,000, then there would be no IHT on the first death.

In October 2007, new IHT rules were introduced for husbands and wives so that any of the nil-rate band that is unused on the first death can be transferred for use on the second death. There is therefore much less IHT benefit from including gifts to the value of the nil-rate band in your will. Because of this, switching to a tenants-in-common arrangement may be unnecessary.

However, if you and your wife are considering gifting some or all of the property to your daughter during your lifetimes, to mitigate IHT, you will need to hold it as tenants-in-common to enable you to make such a gift.