How is jointly owned property treated for Inheritance Tax when one owner dies?

Full answer

Property can be jointly owned in two legally distinct ways in England and Wales, and the structure chosen affects both who inherits the deceased's share and, in some cases, Inheritance Tax planning options, even though the basic Inheritance Tax exposure is similar either way. **Joint tenants -- survivorship applies** Where property is held as joint tenants, each owner has an equal, undivided interest in the whole property, and on the death of one owner, their interest automatically passes to the surviving joint owner(s) by the rule of survivorship -- this happens automatically regardless of what the deceased's will says, since a joint tenant's interest is not something that can be left to someone else in a will. **Tenants in common -- each owner has a distinct, separate share** Where property is held as tenants in common, each owner holds a specific, defined share (which does not have to be equal, for example 60/40), and that share does NOT automatically pass to the other co-owner on death -- instead, the deceased's specific share passes according to their will (or the rules of intestacy if there is no valid will), giving much more flexibility over who ultimately inherits that portion of the property. **Inheritance Tax treatment is broadly similar either way** Regardless of whether the property is held as joint tenants or tenants in common, the VALUE of the deceased's share is included in their estate for Inheritance Tax purposes -- joint tenancy affects who legally receives the share and how it passes (automatically to the survivor rather than via the will), but it does not by itself remove that value from the Inheritance Tax calculation. **Worked example** A couple who are not married or in a civil partnership jointly own a house worth £400,000 as tenants in common, in equal 50/50 shares. When one partner dies, their £200,000 share is included in their estate for Inheritance Tax purposes and passes according to their will (which might, for example, leave it to the surviving partner, their children, or a mix) -- if left to the surviving partner (who is not a spouse or civil partner), no automatic spouse exemption applies, and the £200,000 share is assessed against the deceased's available nil-rate band and other allowances in the normal way. **The spouse and civil partner exemption changes the picture significantly** Where the surviving joint owner IS the deceased's spouse or civil partner, transfers between spouses and civil partners are generally exempt from Inheritance Tax entirely, regardless of whether the property was held as joint tenants or tenants in common -- this means for most married couples or civil partners, the practical Inheritance Tax difference between the two ownership structures is much less significant, since the surviving spouse's inherited share is not taxed on the first death either way. **Why unmarried couples need to plan more carefully** For unmarried couples (including long-term cohabiting partners), the spouse exemption does not apply at all, meaning the deceased's share of jointly owned property is assessed for Inheritance Tax in the normal way, using only the standard nil-rate band (and residence nil-rate band, where applicable) -- this makes the choice between joint tenancy and tenants in common, and the specific terms of a will, considerably more important for unmarried couples than for married couples or civil partners. **Changing from joint tenants to tenants in common** Co-owners can change (sever) a joint tenancy into a tenants in common arrangement during their lifetimes if they want more control over who inherits their specific share, which is a common piece of Inheritance Tax and estate planning advice for unmarried couples or those wanting to leave their share to children from a previous relationship rather than automatically to a co-owner. **Practical tip** Check how your jointly owned property is actually held (joint tenants or tenants in common -- this is stated on the Land Registry title), and if you are not married or in a civil partnership with your co-owner, consider whether severing a joint tenancy and making a clear will would better achieve your intended Inheritance Tax and inheritance outcomes, since the automatic survivorship rule under joint tenancy overrides whatever your will says about that specific property.

Try the calculator

More answers

• Do I pay Capital Gains Tax when I sell a property I inherited?