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Joint Tenants are those people that are party to a Joint Tenancy agreement, which can consist of two or more people. Joint Tenancy is one of two ways in which homeowners can have their property ownership registered in.
So, let's take a look at the implication of being Joint Tenants in ownership, along with alternatives to having your property ownership vested in a Joint Tenancy arrangement. We also offer details and information as to how we can help with a Mortgage.
Table of Contents:
As a reminder then, Joint Tenants are those people who own a particular property and who have their ownership and interest in the property registered on a Joint Tenancy basis within their Mortgage Deed.
Joint Tenancies will usually consist of two or more people, although they most commonly exist between married couples. The effect of the joint tenancy is that both parties own 100% of both the value of the property, and of any debts, like a mortgage, attaching to it.
It's important to know that property owned under a Joint tenancy agreement cannot have any part of its ownership sold separately, and upon the death of either party to the Joint Tenancy agreement; sole ownership, together with any liabilities attaching to it, will transfer in its entirety to the surviving Joint Tenants.
The alternative to having a property vested in a Joint Tenancy agreement, would be to apportion percentage shares of ownership on a 'Tenants in Common' basis. For instance, a couple may decide to split the ownership of their property on a 50:50 basis. Thus, each party would own half of the property, and along with it, half of any debts registered against it.
So, in the event of a partner dying where the property is registered on a Tenants in Common basis, the surviving partner would retain their 50% share of the ownership of the property. The deceased's share of the ownership would pass to their Estate for distribution in accordance with the terms of their Will.
It's become an ever increasingly popular practice in recent times for married couples to sever their Joint Tenancy agreements in favour of having them replaced with a Tenants in Common property ownership agreement within their Mortgage Deed. Why? Well, it's usually for Estate Planning purposes and the mitigation of Inheritance Tax (IHT) payments.
I understand that by severing our Joint Tenancy we could save up to £120,000 in Inheritance Tax (IHT). Is this true, and if so, how does it work?
Yes this is absolutely true!
Continually rising house prices over the last few years has meant that many more properties are being caught in the Inheritance Tax (IHT) trap. The effect here is that many Estates are being pushed way beyond the current £300,000 'Nil Rate' band threshold.
The value of an Estate over the "Nil Rate" band automatically places an Inheritance Tax (IHT) burden of 40% on the remainder of the Estate, which can be very expensive!
Consider a single person having a modest Estate of £500,000. On death, the IHT "Nil Rate" band of (currently) £300,000 would be exempt from Inheritance Tax, but thereafter, all the individuals asset's would be taxed at a whopping 40%! So the Chancellor could expect a big fat cheque of £80,000. (That is £500,000 less £300,000 Nil Rate IHT = £200,000 x 40% IHT = £80,000).
So how does severing a Joint Tenancy agreement in favour of a Tenants in Common ownership agreement, benefit a married couple and the mitigation of Inheritance Tax (IHT) they may have to pay?
By splitting-off the property ownership into a Tenants in Common basis, rather than a Joint Tenancy, it will allow for the effective use of the Inheritance Tax (IHT) Nil Rate Band twice, once on the death of the first party, and again on the death of the survivor.
To do this, each party will leave their 50% share to someone other than their spouse, usually another close family beneficiary, often a child or children. By doing so, on the death of the first partner, up to £120,000 Inheritance Tax (IHT) can be saved.
How? Well, let's look at an example:
John and Janet have been looking into Estate Planning with their financial adviser recently, and were quite shocked to find that their Estate is currently worth some £750,000. Recent estimates show that their home is worth £600,000, and as their property ownership is currently vested in a Joint Tenancy agreement, both John and Janet, as Joint Tenants, each own the full value of the property at £600,000. If either were to die, full ownership would automatically transfer to the remaining spouse free of Inheritance Tax (IHT).
That's OK, but the entire £600,000 value of the property has passed to the surviving spouse, and on their death, only one Nil Rate Inheritance Tax band is left to apply against the survivor's Estate. Thus,
| Estate Value (Joint Tenancy): | £750,000 |
|---|---|
| Less: Inheritance Tax Nil Rate Band: | £300,000- |
| Amount of Estate Subject to IHT: | £450,000 |
| Therefore, IHT due at 40% £450,000 x 40% = | £180,000 |
However, if John and Janet were to sever their Joint Tenancy, and replace it with a 50% each Tenants in Common ownership, then the situation would change as follows on the death of the second spouse:
| Estate Value (Tenants in Common): | £450,000 |
|---|---|
| This is calculated at £750,000 less £300,000 being 50% property share gifted to a person other than the spouse. From the revised Estate Value of £450,000 deduct the Inheritance Tax Nil Rate Band of £300,000. This will leave the value of the Estate subject to IHT at £150,000. |
|
| Therefore, IHT due at 40% (£150,000 x 40%): | £60,000 |
| Thus, Inheritance Tax Saving: (£180,000 - £60,000) |
£120,000 |
| Therefore, IHT due at 40% £450,000 x 40% = | £180,000 |
This would then mean that on the death of the second spouse, only their 50% share of the property would be included in their Estate, the other 50% having been taken out of the Estate on the first spouse's death.
Food for thought? If your mortgage is currently on a Joint Tenancy basis, Shire Direct can arrange for your solicitor to sever the Joint Tenancy and re-vest your property ownership into a Tenants in Common basis. So get in touch to discuss your requirements, naturally without any obligation. One of our professionally qualified Mortgage Advisors will carefully discuss your needs, circumstances and aspirations and come up with the most appropriate mortgage solution to suit you!
Call us free on Freephone 08000 282 281, our lines are open everyday (including the weekends) until 10pm, or alternatively you can enquire online at any time! Our mortgage advisors will be more than happy to talk you through the options open to you and provide you with an in-principle decision, whatever your circumstances!
Well that wraps up our look at Joint Tenants, we hope we've been able to provide some insight for you and have answered any initial questions you may have had. Don't forget there is lots of useful information throughout our website, so why not take some time out to investigate some of the options that could be available to you, and if you feel we can be of help then why not get in touch, we think you'll be glad you did!
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