Inheritance Tax

[Catrina1234]

Boring I know but worried - hopefully some lawyers on here. We have been co-habiting for over 40 years. We have made a Will and are "Tenants in common" - however someone has told me that we should have taken Inheritance Tax into consideration, which we didn't do. I have been googling and gather that it is complicated for couples not married and should be joint tenants rather than tenants in common.
I'd be immensely grateful for any advice.

[ThePlaceboEffect]

Being tenants in common or joint tenants will have no affect on the amount of Inheritance Tax you pay. Depending upon the terms of your Will and the beneciary of your property means you could benefit from the new Residential Nil Rate Band.

[MrsBertBibby]

Do you have children? Of both of you, or separately?

[whataboutbob]

Sorry if this is inappropriate, but isn't IHT often the reason why people marry when they know they haven't got long left? Which suggests there isn't an easy way round VB it. Would you consider marrying? Tenants in common is good if you don't have children together.

[whataboutbob]

Sorry about the silly typo. I meant " an easy way round IHT" of course.

[darceybussell]

Do you and your partner have any other major assets or just your home? How much is the house worth?

[Catrina1234]

Thanks folks. House is worth around the IHT level i.e. £325,000. We are both early 70s. I have a son from first marriage and we have another son together and on the second death everything will go to them. There might be a few thousand in addition to the property but nothing much. We did the tenants in common thing in case one of us had to go into a care home and the LA can then only take half of the value of the house to pay the fees. Placebo I don't know anything about the "Residential Nil Rate Band* so I'll find out.

The real worry is that as we aren't married one of us could end up paying IHT on the whole of the property when one dies. We would get married if this became an issue.

[Gasp0deTheW0nderD0g]

I got this from an article in the Telegraph from a few days ago. Assuming it's accurate, you could pass on a lot more to your children if you get married.

Currently, IHT is charged at 40pc on estates that are worth more than £325,000. However, if you are married or in a civil partnership, all assets can be passed to a surviving spouse without any inheritance tax being applied whatsoever.

What's more, when the second spouse dies you can utilise both partners' allowance when passing assets on to the next generation. This means married couples can leave £650,000 to their children before IHT is applied.

If I understand this right, what it means is that when the first spouse dies, if everything goes to the surviving spouse (and it does have to be a spouse or CP) there is no IHT to pay at all, so the nil rate band of £325k doesn't get used.

When the second spouse dies and the estate passes to their heirs (whoever they are), because the first spouse didn't use their £325k, that gets applied to the second spouse's estate along with the second spouse's own nil rate band, and that knocks £650k in total out of IHT altogether.

Hope this helps.

[olliegarchy99]

The real worry is that as we aren't married one of us could end up paying IHT on the whole of the property when one dies. We would get married if this became an issue
if your property and the rest is only around the IHT nil rate amount you would not pay any IHT on the first death and the whole estate would be passed to whomever you want.
On the second death the estate would be treated as 'unfortunate single people' are treated - your beneficiaries would have to pay IHT on anything above £325K (if for example the house had increased in value).
Of course if you were married the doubling of the nil rate band would kick in.
Hope that is correct - but it is how I always understood it.

[darceybussell]

If the house is worth 325,000, and therefore you only have assets of around £163k each, then you don't need to worry about Inheritance Tax.

If you leave your house to your partner and then he dies with assets of over £325,000, IHT will be due at 40% on the amount over and above. So if you want to leave the house to each other in your wills, on the second death there may be a small amount of tax to pay. This will depend on how much the house goes up in value before your death.

Getting married means you will get to double up on the nil rate band, but if you'd prefer not to you can replicate this in your will using a trust - a lawyer drafting your wills should know about this because it was very common before the transferable nil rate and.

[MrsBertBibby]

For the resIdential nil rate band to work fully, (which you don't really need given the value of the house, unless you have lots of other assets) then you need for your older son to inherit direct from you. Any inheritance going from your partner to your elder son won't count for that as your older son won't count as your partner's lineal descendant (if you were married it would be fine).

You should probably talk to a solicitor about reviewing your wills to make sure you get to use the allowances right. And think about powers of attorney while you're at it if you haven't already done so.