What is the difference between joint tenancy and tenancy in common and how it has an impact upon inheritance tax planning?
If you think of joint tenancy as a property owned as a whole, you cannot separate it out. In other words, when the first person dies, the asset automatically goes to the surviving spouse. It's not dictated by the will as to where that asset goes, it automatically is owned by the surviving spouse. That really is joint tenancy.
Tenancy in common is more like holding two parts of a whole – they are close together but, strictly speaking, it’s not a joint. When the first person dies, you are able to take their share of the property and put it into a trust. What's the benefit of that? If you transfer the asset - the whole house, to the surviving spouse, then there are issues around inheritance tax in their estate.
Also, the Nill Rate band hasn't grown at all for the last 10 years - it's been frozen by the government and it will continue being frozen until 2026. And there's no guarantee to what happens after that. Whereas, if the property was held in tenancy in common and we're able to put £325,000 of the value of the property into a separate trust, it means that part of the property can grow inside of the trust, and then that money would not be liable for inheritance tax on the surviving spouse. Therefore, you get growth inside the trust not inside the surviving spouse’s estate and there is a potential inheritance tax saving.
There are few other inheritance tax savings around that as well. And all of this fundamentally revolves around having the houses tenancy in common rather than in joint tenancy.