Jointly Owned Property and Inheritance Tax UK: Joint Tenancy, Tenancy in Common, and the Co-Ownership Discount
The type of joint ownership determines who inherits and how IHT is calculated. Joint tenancy passes the property to the survivor automatically — but the deceased's share is still taxed. Tenancy in common lets each share pass under the will, enabling nil-rate band planning. Unmarried co-owners get a 10–15% co-ownership discount; married couples don't.
Joint Tenancy vs Tenancy in Common: Key Differences
| Feature | Joint Tenancy | Tenancy in Common |
|---|---|---|
| How ownership is held | Both owners hold 100% of the property together — neither has a separate, distinct share | Each owner has a defined fractional share (e.g. 50/50 or 60/40) that is legally separate |
| On death | Deceased's interest passes automatically to survivor by right of survivorship — outside the will and intestacy | Deceased's share passes under their will (or intestacy if no will) — independently of the surviving owner |
| IHT treatment | Deceased's half-share is included in their estate for IHT, valued at 50% of full property value (minus co-ownership discount if unmarried) | Deceased's fractional share is included in their estate at its proportionate open market value (minus co-ownership discount if applicable) |
| Co-ownership discount | 10–15% discount on unmarried co-owners' share (HMRC practice) — nil for married couples under related property rule (s161) | Same discount applies on the same basis — discount reflects the difficulty of selling a partial share |
| Nil-rate band planning | Whole property passes to survivor — no NRB used on first death (though transferable NRB available on second death) | Deceased's share can pass to children or NRB trust on first death, using the NRB and reducing the survivor's estate |
| Severing | Can be severed at any time by notice in writing — creating a tenancy in common. Must be registered at Land Registry. | Cannot be converted to joint tenancy without a formal conveyance — both owners must agree |
Frequently Asked Questions
Does jointly owned property pass through a will or bypass it?
It depends on whether the property is held as joint tenants or tenants in common. Joint tenants: on the death of one owner, the property passes automatically to the surviving co-owner by right of survivorship — completely outside the will and intestacy rules. Even if the deceased's will leaves their share to someone else, the joint tenancy overrides it. The surviving owner becomes sole owner from the moment of death. Tenants in common: each owner holds a defined fractional share that is a separate asset. On death, that share passes under the deceased's will (or intestacy if there is no will) to whoever is named. The will controls the destination of the share — and unlike joint tenancy, the share does not automatically go to the other owner.
How is jointly owned property valued for IHT?
For IHT purposes, the deceased's share of a jointly owned property is valued at its open market value — which means the proportion of the property's full open market value that the deceased owned (e.g. 50% of the full value for equal joint tenants). However, HMRC accepts a co-ownership discount in practice: because a partial interest in a property is harder to sell than the whole property (a buyer cannot get vacant possession without the co-owner's cooperation), HMRC allows a discount on the share's value. The standard discount range is 10–15%, with 15% more common for equal shares where neither party can be compelled to sell. The discount is agreed with HMRC's District Valuer on a case-by-case basis. Note that the related property rule (IHTA 1984 s161) prevents this discount for married couples — because HMRC aggregates the spouses' shares and values them as a proportion of the full property value with no discount.
What is the related property rule and how does it affect joint ownership between spouses?
The related property rule (IHTA 1984 s161) requires that where a deceased's property and their spouse's property form part of a single unit, the value of the deceased's share must be calculated as a proportion of the combined value — not as a stand-alone partial interest. In practice, this means that when married co-owners die, HMRC will not allow the co-ownership discount on the surviving spouse's half-share. The rule was designed to prevent married couples from artificially deflating the value of their estates by fragmenting ownership. For unmarried co-owners (siblings, cohabiting couples, business partners), there is no related property rule — so the co-ownership discount is available and routinely applied.
How does tenancy in common enable nil-rate band planning on first death?
If a married couple own their home as tenants in common, each owns a defined share (e.g. 50%). On first death, the deceased's 50% share does not automatically pass to the survivor — it passes under the will. The deceased can therefore leave their 50% share to their children (or into a nil-rate band discretionary trust for the benefit of the whole family). This uses the deceased's nil-rate band (£325,000 in 2026/27) to shelter the share from IHT on first death. The survivor retains their own 50%, which passes on second death. Combined with the transferable nil-rate band rules (which allow the survivor to inherit the deceased's unused NRB), a couple can pass up to £650,000 free of IHT — and up to £1 million with the Residence Nil Rate Band (£175,000 each). Joint tenancy prevents this planning because the whole property automatically passes to the survivor, using no NRB on first death.
How do you sever a joint tenancy to create a tenancy in common?
A joint tenancy can be severed at any time by one or both co-owners to create a tenancy in common. The practical steps are: (1) Draft a Notice of Severance — a written document signed by the severing owner (or a solicitor on their behalf), sent to the other joint owner(s) by recorded delivery or personal service. (2) Register the change at Land Registry — file form SEV with Land Registry to enter a Form A restriction on the title register, preventing a sale without both owners' signatures. Land Registry does not require the other owner's consent to register the restriction; service of the notice alone is sufficient to sever. (3) Update wills — once the joint tenancy is severed, each owner now has a defined share that will pass under their will. Review and update wills immediately. The severance takes effect from the moment the notice is served — it cannot be backdated. It is reversible (both owners can agree to re-create a joint tenancy) but that requires a formal conveyance.
Is there IHT on property that passes by survivorship (joint tenancy)?
Yes — passing by survivorship does not mean passing free of IHT. The deceased's share of a jointly owned property is included in their estate for IHT purposes, even though it passes automatically to the survivor outside the will. For married couples, the spousal exemption means the property passes to the survivor free of IHT — but the whole property value will eventually be taxed in the survivor's estate on second death (unless further planning is done). For unmarried co-owners, the deceased's share is taxed in their estate at 40% above the nil-rate band — and the survivor receives the property subject to that IHT being settled by the estate. This is a common shock for cohabiting couples who assume 'it just goes to the other one' means no IHT — survivorship avoids the will but does not avoid IHT.
Sever, Plan, and Protect — Start With the Right Will
Whether you own as joint tenants or tenants in common, your will controls what happens to your share. Combine the right ownership structure with a properly drafted will to maximise both nil-rate bands for your family.
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