Jointly Owned Property and Inheritance Tax
Understanding how different types of joint ownership affect inheritance tax calculations and estate planning
Key Point
The way you own property jointly with others significantly affects inheritance tax. Joint tenantshave equal shares with automatic inheritance, while tenants in common can have unequal shares and choose who inherits their portion.
Joint Bank Accounts
For Inheritance Tax (IHT) you look at beneficial entitlement, not just whose name appears on the account. HMRC may apportion the deceased's share by who actually contributed to the balance. Do not assume an automatic 50/50 split in all cases. Withdrawals by one holder in excess of their contributions can be treated as lifetime gifts.
Forms: Use IHT404 for jointly owned UK assets.
- IHT404 — jointly owned UK assets (with IHT400)
- IHT417 — jointly owned foreign assets
- IHT413 — business/partnership interests (where relevant)
Types of Joint Ownership
Equal ownership with right of survivorship
Key Characteristics
- Each owner has equal share (usually 50/50)
- Cannot sell your share without other owner's consent
- Property automatically passes to surviving owner on death
- No inheritance tax on transfer to surviving joint tenant
- Cannot leave your share to someone else in your will
IHT Implications
- 50% of property value included in deceased's estate
- Surviving owner receives property tax-free
- No probate required for property transfer
- May affect nil rate band calculations
Separate ownership shares that can be unequal
Key Characteristics
- Can own different percentage shares (e.g., 70/30)
- Can sell your share independently
- Share does not automatically pass to other owner
- Can leave your share to anyone in your will
- More flexibility in estate planning
IHT Implications
- Your actual percentage share included in estate
- Share passes according to your will or intestacy rules
- May be subject to inheritance tax
- Probate required for share transfer
An undivided half-share in a dwelling can be worth less than 50% of the freehold vacant possession value. Where a co-owner (e.g., spouse/partner) remains in occupation, a discount to a simple pro-rata value is often justified by market evidence. The discount is not automatic and should be supported by valuation rationale.
The RNRB applies only where a qualifying home (or downsizing equivalent) passes to direct descendants. With joint tenancy, a home usually passes by survivorship to a spouse/civil partner, so the RNRB typically is not used on the first death (but may be used on the second). Using tenants in common allows a share to pass by will to direct descendants if that suits the family plan (subject to taper and other conditions).
Common Tax Scenarios
Special rules apply for spouses and civil partners
Joint tenants - spouse dies first
No inheritance tax due to spouse exemption. Surviving spouse owns 100% of property.
Tenants in common - spouse dies first
Deceased's share passes tax-free to surviving spouse (if left to them in will).
Both own property worth £800,000
First death: no tax. Second death: may face IHT on full value minus available allowances.
No automatic spouse exemption - different tax treatment
Joint tenants - partner dies
50% of property value included in estate. May face inheritance tax if estate exceeds £325,000.
Tenants in common - partner dies
Deceased's share included in estate. Surviving partner has no automatic right to inherit.
Property worth £650,000, each owns 50%
£325,000 potentially subject to IHT (minus other assets and debts).
Parents, children, siblings owning property together
Parent and child as joint tenants
50% included in parent's estate. Child inherits automatically but may face IHT.
Siblings as tenants in common
Each sibling's share included in their estate. No automatic inheritance rights.
Three-way ownership
Each person's share (typically 33.33%) included in their individual estate.
Estate Planning Strategies
Converting between joint tenants and tenants in common
Benefits
- Allows more flexible estate planning
- Can utilize both partners' nil rate bands
- Enables leaving share to children or others
- May reduce overall family IHT liability
Considerations
- Requires legal documentation (severance of joint tenancy)
- May have capital gains tax implications
- Could affect mortgage arrangements
- Should consider relationship stability
Structuring ownership to optimize tax efficiency
Benefits
- Can reflect actual financial contributions
- May reduce higher earner's estate value
- Allows targeted use of allowances
- Flexibility in inheritance planning
Considerations
- Must reflect genuine ownership intentions
- Requires proper legal documentation
- May complicate future property decisions
- Consider impact on relationship dynamics
Transferring a share of your home to an adult child while continuing to live there can trigger gift with reservation rules, pulling value back into the estate on death. It can also have POAT (Pre-Owned Assets Tax) implications. Take advice before changing title if you intend to keep living in the property.
- Use beneficial entitlement (actual contributions for bank accounts)
- For undivided property shares, consider a market-based discount (not automatic; evidence required)
- If a joint owner sells or buys out a share, revisit the valuation and any CGT/IHT interactions
- If aiming to use RNRB, ensure a qualifying home (or downsizing equivalent) passes to direct descendants
- Use the correct schedules (IHT404/IHT417, plus IHT400)
Legal Documentation: Any changes to joint ownership require proper legal documentation and may have immediate tax implications.
Mortgage Implications: Changes to ownership structure may require lender consent and could affect mortgage terms.
Capital Gains Tax: Transferring ownership shares between unmarried individuals may trigger capital gains tax liability.
Professional Advice: Always consult with a solicitor and tax advisor before making changes to property ownership structures.