Question: My husband and I own a flat in London, a family home in Somerset and a small holiday cottage in Cornwall. We hold all of these as tenants in common, as that is what we were told to do by our solicitor when we bought each property.
My friend says that we need to be considering a nil-rate band trust as this will also help reduce inheritance tax. Can you explain what this means and who we contact to sort this out?
Answer: Tenancy in common means that you and your husband each own a divided share in the properties and you can leave your share to whoever you like in your wills. A joint tenancy means that the survivor of you inherits the other’s share automatically. If you have valid wills leaving your interest in the property to the other, the effect is the same for succession purposes.
Inheritance tax is chargeable at 40 per cent of the total assets owned over and above the nil-rate band, which is currently £325,000.
With regard to inheritance tax, assuming the survivor of you is to inherit the properties, there is no need for a nil-rate band trust in your wills because the survivor can benefit from the unused nil-rate band of the first to die.
A married couple have a joint nil-rate band of £650,000, which is freely transferrable and will shortly benefit from an additional nil-rate band — if the family home passes to their children — of up to £1 million.
Seek specialist tax planning advice from your solicitor and/or financial adviser.
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These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.