Joint Property and Inheritance Tax: Joint Tenancy, Tenancy in Common, and IHT Planning
How jointly owned property is taxed for IHT depends on whether you own it as joint tenants or tenants in common. Joint tenancy defers rather than avoids IHT — the whole property is taxable in the survivor's estate on second death. Tenancy in common lets each owner's share pass under their will, enabling NRB and RNRB planning on first death.
Joint Tenancy vs Tenancy in Common: IHT Comparison
| Aspect | Joint Tenancy | Tenancy in Common |
|---|---|---|
| How it works | Right of survivorship: on first death, the survivor automatically inherits the whole property — it passes outside the will | Each owner's share passes under their will (or intestacy rules). The deceased's share is an asset of their estate. |
| Does the share pass through the estate? | No — right of survivorship operates outside the estate. But the whole property is in the survivor's estate on second death. | Yes — the deceased's share (e.g. 50%) is an estate asset, valued and subject to IHT. |
| Can the deceased direct their share by will? | No — survivorship overrides the will for the jointly held property. | Yes — the deceased can leave their share to anyone (children, trust, charity) by will. |
| IHT on first death (couple) | No IHT if the survivor is UK domiciled (unlimited spousal exemption under IHTA 1984 s18). | No IHT on transfer to spouse. But if left to children, IHT applies if estate exceeds NRB. |
| IHT on second death (couple) | Whole property taxable in survivor's estate. Both spouses' NRBs and RNRBs may still be available via transferable allowances. | Survivor only owns their own share. First spouse's NRB could shelter their share for children. Typically more tax-efficient for large estates. |
| Co-ownership discount for IHT | N/A — survivorship means the survivor owns 100%. | HMRC typically accepts a 10–15% discount on a 50% share to reflect difficulty selling a co-owned share. |
Converting Joint Tenancy to Tenancy in Common
Converting from joint tenancy to tenancy in common is called severance. It is done by serving a written notice of severance on the other co-owner(s). The notice does not need to be agreed — one co-owner can sever unilaterally. Once served, the joint tenancy converts to a tenancy in common in equal shares (unless there is a deed of trust that specifies different proportions).
Severance does not require a solicitor but the notice should be in writing and kept with the title deeds. If the property is registered at the Land Registry, a Form A restriction should be entered against the title to prevent the survivor from selling as if they were the sole owner. This protects the deceased's share and ensures it passes under the will.
After severance, each owner should review their will. If the will leaves everything to the surviving spouse, severance has no practical effect — the deceased's share will simply pass to the survivor (IHT-free under the spousal exemption but absorbed into their estate for second death). To achieve IHT planning benefit, the will needs to direct the deceased's share to children or a discretionary trust, using the NRB on first death.
Frequently Asked Questions
Does joint tenancy avoid Inheritance Tax on a property?
Joint tenancy (right of survivorship) means the deceased co-owner's share passes automatically to the surviving co-owner without going through the will or estate. However, this does NOT avoid IHT — it merely delays it. On the first death, if the surviving co-owner is the deceased's spouse or civil partner, the property passes IHT-free under the unlimited spousal exemption (IHTA 1984 s18). On the second death, the survivor owns the entire property, which is fully included in their estate at 40% above the nil-rate band. For a married couple, joint tenancy is simple and avoids probate on the property on first death, but it does not provide any NRB planning opportunity. A tenancy in common with a will leaving the deceased's share to a trust or to children may allow the first spouse's NRB (and RNRB) to be used separately — though with transferable NRB and RNRB available for married couples, the planning advantage is less significant than it was before 2007.
What is the difference between joint tenancy and tenancy in common for IHT?
The key IHT difference: (1) JOINT TENANCY: on the first death, the survivor inherits the whole property by right of survivorship. The deceased's share does not form part of their estate and is not separately subject to IHT. The whole property is included in the survivor's estate on second death. (2) TENANCY IN COMMON: each owner holds a defined share (commonly 50/50 or 75/25). On death, the deceased's share forms part of their estate and is valued separately for IHT. The deceased can leave their share by will — to the surviving spouse (IHT-free), to children (possibly using NRB), or into a NRB discretionary trust (using the NRB on first death). For unmarried co-owners (e.g. friends or siblings owning a property together), there is no spousal exemption. The first co-owner's share is fully taxable. Tenancy in common allows the first to die to leave their share to the other without survivorship — avoiding the other having to prove survivorship through probate.
What is the related property rule (IHTA 1984 s161) and how does it affect jointly owned property?
The related property rule under IHTA 1984 s161 prevents married couples or civil partners from reducing their estate value by splitting ownership of an asset into smaller, less valuable shares. Without s161, a couple who each owned 50% of a £1 million property could argue that each 50% share is worth less than £500,000 (because a 50% share in a co-owned property is harder to sell than a whole property — a co-ownership discount). The related property rule overrides this: where property is owned by spouses (or by one spouse and the other's estate or trust), the IHT valuation is calculated by reference to the combined value of both shares. HMRC values the couple's combined share as a proportion of the whole property value (not applying a co-ownership discount). Practically: if a couple owns a £1m house equally, each 50% share is valued at £500,000 for IHT — not £450,000 with a co-ownership discount. The related property rule applies between spouses and between a person and a charity where both hold interests in the same asset. It does NOT apply between unmarried co-owners (e.g. a parent and child co-owner, or two friends).
Should a married couple sever their joint tenancy to save IHT?
Severing the joint tenancy (converting to tenancy in common) allows each spouse to leave their half-share by will rather than by survivorship. The traditional pre-2007 planning strategy was: (1) sever the joint tenancy; (2) each spouse leaves their half-share to an NRB discretionary trust on first death; (3) the trust uses the first spouse's NRB (£325,000) on assets worth up to that amount, sheltering it from IHT on second death. Since October 2007, unused NRB is transferable between spouses (s8A IHTA 1984), so for couples whose combined estates are below £650,000 (or £1m with RNRB), NRB trusts are less critical — the survivor can benefit from the transferred NRB directly. For larger estates (above £1m), severance and strategic will planning remains useful: leaving the first spouse's share to children (using the NRB on first death) rather than allowing it to pass to the survivor and increase their taxable estate. Severance is also relevant for unmarried co-owners (no spousal exemption, so each share is taxed at 40% on death).
How is a 50% share in a jointly owned property valued for IHT?
For unmarried co-owners or where the related property rule does not apply, HMRC accepts a discount on a 50% undivided share in a property to reflect the difficulty of selling a co-ownership interest. A prospective buyer of a 50% share cannot force a sale or immediate possession — they would have to make an application to the court under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) to achieve a sale or occupation. This makes the 50% share less marketable than the equivalent portion of a sole-owned property. HMRC typically accepts discounts in the range of 10–15% for a 50% share (so a 50% share of a £500,000 house might be valued at £215,000–£225,000 for IHT, rather than £250,000). The exact discount depends on the circumstances — who the co-owner is, whether they are likely to object to a sale, and the property market. For a married couple, the related property rule (s161) eliminates the co-ownership discount — each 50% share is valued at exactly 50% of the whole.
Does the RNRB apply to a share of a jointly owned family home?
Yes — the Residence Nil Rate Band applies to a qualifying residential interest, which includes a share in the family home. If the deceased owned a 50% share in the family home as a tenancy in common, and that 50% share passes to direct descendants (children, grandchildren), the RNRB (£175,000 in 2026/27) can shelter up to £175,000 of that share from IHT. The RNRB is limited to the value of the qualifying residential interest — so if the deceased's 50% share is worth £150,000, the RNRB available is capped at £150,000. Unused RNRB can be transferred to the surviving spouse (IHTA 1984 s8M). For a joint tenant, the property does not pass under the will — survivorship operates instead. If the survivor later sells the property or moves, the downsizing addition to the RNRB (ss8FA-8FE) may be available if the RNRB was not fully used when the family home was sold and a smaller property purchased.
Make Sure Your Will Reflects Your Ownership Structure
The way you own property affects whether your will can direct your share to your chosen beneficiaries. A correctly drafted will paired with the right ownership structure is the foundation of sound IHT planning.
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