Unmarried? Watch out for the nil rate band
Inheritance tax (IHT) can be a major problem for unmarried couples who own substantial assets. Where a husband, wife or civil partner can leave everything to their legal partner without the estate paying a penny of tax, anything left to an unmarried partner over and above the 'nil rate band' - currently £325,000 per person - suffers tax at 40%. Ouch! With the new nil rate band limits coming in between 2017 and 2021 the nil rate bands look like being £500,000 each. Currently the nil rate band of the first partner to die is transferable (any unused portion) to the surviving partner, not so with an unmarried couple.
Currently the nil rate band of the first partner to die is transferable (any unused portion) to the surviving partner, not so with an unmarried couple.
This makes it absolutely essential that You have to be clever and take some trouble in order to minimise the IHT liability. There are two major ways of doing it. One way is to equalise your estates. For example if between you, you have assets worth £600,000, it is better that these are owned 50:50 rather than one of you owns assets worth £500,000 and the other assets worth £100,000. If they are owned jointly and one of you dies, there is no IHT to pay, as the deceased's estate is £300,000 - within the £325,000 nil rate band. But if someone owning assets valued at £500,000 dies, the tax bill is £70,000. I am sure you can think of better things to do with £70,000 than to hand it over to the Chancellor Of The Exchequer.
So, if you are buying a second property, it may make sense to put it in joint names/tenants in common. But don't rush out and transfer property you have owned for years into joint names, as that will trigger a capital gains tax charge.
There are two ways of owning property jointly - as tenants in common or as joint tenants. If you are tenants in common, you can own the property in any proportions you wish - not just 50:50 but 60:40, 70:30, 90:10 etc etc. And you can bequeath your share to anyone in your will. If you are joint tenants, however, and one of you dies, the other will inherit the property automatically - you cannot leave it to someone else. But, nevertheless, your share is still liable to inheritance tax.
If you know that you are going to inherit a substantial estate from your parents, and that then you in turn will be leaving an even more substantial estate to your children then talk to us about ways of protecting your heirs from huge IHT bills, that into the bargain provide other protective measures from life’s twists and turns with both business, relationship failure and health.