You might also wonder how best to organise your property matters for inheritance tax purposes.
In this article, we look at some of the most common property issues that we discuss with our clients when they’re making a will.
How do you own your property?
Before we think about the will, we first need to establish whether your hold your property as a sole owner, as joint tenants, or as tenants in common.
If you own your property as joint tenants with somebody else, then you both own the entire property together. This is the most common arrangement for married couples because your share passes automatically to the survivor.
If you own it as tenants in common, you each own a defined share of the property. This can be an equal share or different proportions and your share passes in accordance with your Will (or intestacy provisions). It’s often chosen where one person contributes more towards the purchase, or where friends or siblings buy a property together. If you’re unsure how your property is owned, we can help you check. Your title register at the Land Registry will usually confirm this, and if you’re tenants in common, you may also have a Declaration of Trust.
If you own your property as joint tenants
When one joint tenant dies, their share of the property automatically passes to the surviving owner. This happens regardless of what their will says.
Many couples are surprised to discover that a will cannot override this legal rule.
However, for many married or cohabiting couples, this is exactly what they want. In those circumstances, we simply make sure the rest of your will reflects your wishes.
What about inheritance tax?
In terms of inheritance tax, there is none to pay if your home is passing to your husband, wife or civil partner. This is known as the spousal exemption.
But what happens if your spouse dies before you, or you are not married?
Your estate only attracts inheritance tax when it exceeds £325,000 in value. This is called the Nil Rate Band. On top of that, if you leave your home to a direct descendent (your children), you benefit from the Residence Nil-Rate Band. That’s an additional £175,000, so you can pass a total of £500,000 tax-free on to your children.
In addition to that, married couples can combine their allowances. So if your spouse leaves everything to you, then the unused £325,000 transfers over, and your allowance rises to £650,000. Inheritance tax would only be charged on the value of the estate above £650,000, and this rises to £1 million if the estate includes the main home.
So, depending on the value of your home, your estate may not attract any inheritance tax when you die.
If you own your property as tenants in common
Owning your property as tenants in common gives you greater flexibility over what happens to your share of the property.
Unlike joint tenants, your share does not automatically pass to the other owner when you die. Instead, it passes according to your will.
This means that it’s especially important to make a will if you own your property as tenants in common.
Many couples choose to leave their share of the property to each other through matching wills (known as mirror wills). Others prefer to leave their share to children or other family members.
If you don’t make a will, then the rules of intestacy will apply, and under those rules your partner (if you’re not married to them) will receive nothing. This is usually not the desired outcome for cohabiting couples, so a will can change this position.
On the other hand, if you’re married, you may not want to pass everything automatically to your husband or wife. This is often the case if you have children from a previous relationship, who you want to provide for.
You may wish to leave your share of the property to your children while ensuring that your spouse or partner can continue living in the home. A carefully drafted will can achieve this while protecting everyone’s interests.
For people who live alone
If you live alone and you’re the sole owner of your property, you can choose who inherits your home. You can leave it to one person, or multiple people in equal shares. They will then share in the proceeds of the property when it’s sold.
If the value of your entire estate is over £325,000, then inheritance tax may be payable. However, if you leave your home to a direct descendant, then no inheritance tax is due up to the value of £500,000 due to the Residence Nil Rate Band.
How we can help
Every situation is different, and if you book a consultation, we can talk through your situation and your wishes.
We’ll take the time to understand your circumstances, explain your options in plain English, and help you put a will in place that reflects your wishes.
In addition, if you would like to change the ownership of your property, from joint tenants to tenants in common (or vice versa) our expert Residential Property team can help you with that too.
Please get in touch with Helen Freely (at hf@branchaustinmccormick.com) and we’ll give you personal advice for your circumstances.