Jointly Held Assets: Ensuring Your Estate Plan Reflects Your Wishes

The way a jointly owned asset is structured significantly impacts its IHT treatment and how it is passed on after death.  There are two main types of joint ownership: 

  1.  Beneficial Joint Tenants

• Each owner holds an equal, undivided interest in the asset.
• Upon death, the deceased person's share automatically transfers to the surviving owner(s) by *the right of survivorship.
• This applies to most joint bank accounts and properties married couples or civil partners hold. 
•  While the transfer process is usually straightforward and can be automated by financial institutions upon receiving a death certificate, the deceased person's share is still included in the IHT calculation unless they qualify for *spousal exemption. 

   2.  Tenants-in-Common

• Each owner has a distinct and potentially unequal share in the asset.
• The deceased person's share does not automatically transfer to the surviving owner(s).  Instead, it is distributed according to their Will, or if no Will exists,  under *intestacy rules. 
• Ownership details are often recorded in a *Declaration of Trust. 
• Beneficial ownership may differ from legal ownership, particularly with joint bank accounts where only one person contributes financially.  

When a person passes away, jointly held assets do not always pass automatically to the surviving owner(s), and their IHT treatment depends on ownership. 

There are two key aspects of ownership: 

• Legal Ownership:  the name(s) recorded on the title deeds or account documents determines who has legal control over the assets.
• Beneficial Ownership:  This refers to who financially benefits from the asset and how it is taxed.  

The identity of the surviving owner(s) plays a crucial role in determining IHT implications: 

• Spouses and Civil Partners:  IHT is exempt under Section 18 of the Inheritance Tax Act 1984. 
• Non-Spouse Joint Owners:  The deceased person's share is taxable, and the IHT burden may fall on the surviving owner(s).
• Late Additions to Joint Ownership:  if an individual was added to an asset shortly before death without making a financial contribution,  HMRC may still treat the asset as wholly owned by the deceased person, resulting in a full IHT liability. 
  

• The deceased person's share automatically transfers to the surviving owner(s).
• The asset does not pass under the Will and is not governed by *intestacy rules.
• If the surviving owner is a spouse or civil partner, the transfer is IHT-free under the *spousal exemption. 
• If the surviving owner is not a spouse or civil partner, the deceased person's share remains part of their estate for IHT calculations, but the responsibility for paying any IHT liability will fall to the surviving co-owner(s) in the absence of contrary intention in the deceased person's Will. 

• Each owner has a distinct, defined share of the asset.
• the deceased person's share does not automatically transfer to the surviving owner and is, instead, distributed according to their Will or under intestacy rules if no valid Will exists.
• The surviving owner does not inherit the share by default, and they may have to buy out the deceased person's interest or sell the asset.
• The value of the deceased person's share is assessed for IHT purposes, and IHT may be payable by the estate. 

Scenario: 

R passed away on 6 April 2024, leaving:

• A £750,000 property held as joint tenants with her husband, F. 
• A £1 million property held as tenants-in-common with her sister, B. 
• £500,000 in joint bank accounts with her son, C, who made no financial contributions. 

R prepared a will many years ago before her parents passed away. F was named executor of the will and the sole beneficiary of her estate.  R never took steps to update it. 

Outcome:

• The marital home passed to F IHT-free under the spousal exemption. 
• R's tenants-in-common property was passed down according to her outdated Will, unintentionally making B and F co-owners.  This situation could become complex if F's Will later leaves his estate to a friend, charity or new spouse.  While the IHT on this property is payable by the residuary estate rather than B, there is no available cash in the estate to cover the liability.  As a result, the property would need to be sold to pay the IHT.  
• The joint bank account automatically passed to C, but for tax purposes, 100% of the £500,000 remained part of R's taxable estate, resulting in an IHT liability of £70,000 (i.e. 40% of £175,000 over the £325,000 Nil Rate Band). It will be C's responsibility as the surviving asset holder to settle this liability, and R's Will Executor will no longer be able to access the bank account.   (Comment:  @Rachel, as per your comments, this is not strictly true.  Would you like to produce another case study to illustrate this point? Thanks) 

• Regularly review your Will to prevent unintended inheritance disputes. 
• Understand joint ownership structures to avoid unexpected tax liabilities. 
• Seek legal advice to ensure IHT planning is structured correctly.  

Estate planning is more than just naming beneficiaries.  It ensures clear asset distribution, prevents disputes and minimises legal complications.  Thoughtful planning can also reduce IHT liabilities, making the estate transfer process smoother for your beneficiaries.  It is important to ensure that jointly held assets align with your overall estate plan.  A well-structured Will and a strategic estate plan help ensure your assets are distributed according to your wishes, providing clarity and financial security for your loved ones.