Probate Solicitors Limited - Joint Tenancy/Tenancy in Common

Jointly owned property

Many couples share ownership of property. This may be assets such as a joint bank account or "real property" such as land and buildings. In England and Wales there are two different forms of legal ownership to hold land and buildings:

Joint Tenants

In a joint tenancy the owners of the property both own the whole of it. When one owner dies the property passes to the other co-owner(s) automatically under the rules of survivorship. Neither party owns a "share" in the property they only ever co-own the whole. Many people own their properties in this way and possibly don't realise that there is an alternative.

Tenants in Common

Where property is owned as a tenancy in common each co-owner owns a share of the property. There is no survivorship so they are free to do as they wish with their own share. The shares do not need to be equal. Owning a property in this way allows for IHT planning opportunities which are not always available under a joint tenancy.


A Joint Tenancy can be severed in a number of ways including by notice or mutual agreement. This makes it into a tenancy in common. To turn a tenancy in common back into a joint tenancy can only be done by consent.

How severing a joint tenancy can save Inheritance Tax?

Consider the following example where the tenancy is NOT severed:
Janet and George are married and own a property worth 650,000. They have a daughter called Liz. George dies and all his assets pass to Janet free of inheritance tax. However, when Janet dies in 2011 and her assets are passed to Liz, she will have to pay Inheritance Tax at 40% on anything over 650,000 (using Janet and George's combined nil rate band).

If the house has gone up in value to 700,000 and the other assets are valued at 500,000, Liz must pay inheritance tax of 220,000 i.e. 40% of 1.2m.

Now consider the same position where the tenancy IS severed:
If Janet and George had severed the tenancy and George left his 50% share to Liz when he died, the tax position would have been quite different. Liz's 50% could have been given free of inheritance tax using up George's nil rate band of 325,000.

When Janet then dies her half of the house is reduced in value to reflect the difficulty in selling a jointly owned share of a property and the fact that the value of a joint owner's share may be reduced because the other owner has the right to keep living in the property.

Assuming Janet's 50% is valued at 350,000 less 10% it is worth 315,000. With the additional 500,000 her estate is now worth 815,000. Her nil rate band of 325,000 leaves inheritance tax payable on 490,000. Liz must therefore only pay 196,000 in tax, a saving of 24,000.

Note that in the above example Liz would have saved IHT but she may be liable to CGT on the gain in value of her share of the property when it is ultimately sold unless she has been living there as her only or main residence.

The other downside of this arrangement might be that if the Inheritance Tax threshold increases between the date George dies and the date Janet dies, the extra relief that could have been transferred from George to Janet is lost but contrast this to the gain in value of the half of the property owned by Liz. It is a calculation as to whether house values will increase faster than the Inheritance Tax threshold. The IHT threshold is current frozen for the remainder of this government (2012).

A properly considered combination of severing the joint tenancy, a nil-rate band discretionary trust and a revocable life interest can reduce the IHT bill without creating a CGT liability.

Make sure that you take proper legal and financial advice before embarking on any tax saving schemes.

If you would like specialist help on this please contact us on 01564 758055

This page last updated 05/05/2012

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