Property held as ‘joint tenants’
If you own your home or other property as ‘joint tenants in equity’, technically, you both own 100% – there’s no divisible share. So when one dies, the other continues to own 100%.
For example, if you own your home with your husband as joint tenants and one of you dies, the other continues to own 100%. They are said to have inherited by ‘survivorship’.
The same principle generally works for joint bank accounts between spouses/civil partners. However, there may be an argument for a bank account not to pass by survivorship in other circumstances – for example, where a parent sets up and fully funds the account for one of their children. Such scenarios can lead to costly challenges against the estate, not to mention complicated Inheritance Tax liability – so it is wise to keep accurate records of both deposits/withdrawals and both parties’ intentions.
Some people think it is a benefit for their home to pass automatically to their partner on death – but in fact, this can be a huge detriment. If your partner inherits the home outright and remarries, falls into financial difficulty or needs care in the future, practically all of its value can be lost. You can find out more about this here.
Property held as ‘tenants in common’
Holding your home as ‘tenants in common’ allows you to protect your share for your children.
An alternative way of owning property such as the family home is as ‘tenants in common’. This allows each of you to have a defined share in the property. When you die, your share passes according to your Will or, if there is no Will, according to the rules of intestacy.
Holding your property as tenants in common gives you a great deal more flexibility when it comes to writing your Will. You could, for example, leave your partner a life interest in your share of the home so that they can live in it for as long as they need to. Even if they remarry, run up debts or end up with huge care bills, your share of the property is safe for your children or grandchildren.
Many people assume that life insurance passes outside of the Will, free from Inheritance Tax. Unfortunately that is not always the case!
When you take out life insurance, you own the benefit of the policy – the proceeds. However, it won’t be much use to you since the insurance company will typically pay the proceeds to your estate on death! This payment may of course result in a charge for Inheritance Tax.
To avoid this, you can write the policy into trust or assign the benefit of it to specified people. This effectively gives away the benefit of the policy so that on death, it is paid directly to your chosen beneficiaries. Once you give it away, the benefit of the policy no longer belongs to you and therefore falls outside of your estate for Inheritance Tax purposes. Any attempt to gift it in your Will fails, because you have already given it away.
Many pension schemes include payment of discretionary benefits – meaning that the pension company will pay such benefit to whichever members of your family it sees fit. You can usually provide a letter of wishes indicating who you would like to benefit, but the final decision rests with the provider of the Scheme.
Such schemes allow you to pass on your pension free from Inheritance Tax. If you die before reaching 75, withdrawals made by the beneficiaries do not incur a tax charge. However, if you die aged 75 or older, withdrawals are taxed as if they were income for the beneficiaries.
You should check with your pension provider to see how the type of scheme you have pays out. Whilst most will operate under the discretionary system, some provide that lump sums should be paid to your Personal Representatives on your death – these would pass according to your Will (or the rules of intestacy where there is no Will).
If you have a SIPP hosted on a platform such as Hargreaves Lansdown, you can often make the nomination in your account area and this will have immediate effect.
Digital assets can be valuable and need special attention in your Will.
Nowadays it is increasingly common for us to own digital assets – even though it is perhaps something you haven’t even thought about! Common types of digital property include:
- High quality photographs and videos (that potentially could be sold/licensed)
- Cryptocurrency such as Bitcoin
- Websites / blogs you have created
- Domain names
- Online books you have written
- Digitally created artwork
- Online stories or poetry you have written
Many people wrongly assume that any digital assets they own will be covered by a personal possessions (or ‘chattels’) clause their Will.
However, for Wills made on or after 1 October 2014, the definition of ‘personal chattels’ includes all tangible movable property owned by the testator except business assets, investments and money.
Digital assets are not tangible so they won’t be covered by a personal possessions clause. This means they’ll form part of your ‘residuary estate’. This is the portion of the estate that is left after all your specific gifts have been dealt with – you’ll name a beneficiary who should receive this.
If you don’t want your digital assets to go to the ‘residuary beneficiary’, you need to deal with them specifically in your Will (e.g. “I leave my domain name www.abc.com to my daughter Helen”) or extend the definition of ‘personal property’ to include them in that part of your Will.
Many clients ask us to include property in their Wills such as land or buildings which is owned by their business – typically a Limited Company. If property is held in the name of the Limited Company, it cannot be left in your Will! However, you can leave your shares of the Limited Company to your choice of beneficiaries.
Shares in a business may attract Business Property Relief at 50% or 100%. Note that property which is held in your name but used by your Company may also attract Business Property Relief. You can find out more about Inheritance Tax allowances and reliefs available here.
In the past some types of funds could be ‘nominated’ to particular people – these included deposits not exceeding £5,000 in certain trustee savings banks, friendly societies, and industrial and provident societies. The nomination directed the institution to pay the money held in the account to your chosen nominated party.
Whilst there are few provisions in law now that allow new nominations, any nominations that have already been made will be valid.
It is important to understand which of your assets will pass according to the terms of your Will, and which will not. This is both to ensure that your assets end up with your choice of beneficiary and in addition, your estate doesn’t pay more Inheritance Tax than it needs to.
Property that can be left in a Will includes:
- Property and assets in your sole name
- Your share of property held as joint tenants in common
- Digital assets
- Life insurance that has not been assigned or written into trust (however consider assigning or writing into trust, as otherwise Inheritance Tax could be due)
- Certain pensions that specify a lump sum must be paid to your Personal Representatives
- Your shares of a business
- Property held in your own name which is used by a business
Property that passes outside of the Will includes:
- Property held as ‘joint tenants in equity’
- Joint accounts (although there may be issues where these are not held with a spouse/civil partner – see above)
- Most pensions / SIPPs – CHECK with your provider
- Life insurance policies that have been assigned or written into trust
- Property owned by a business (you must instead leave your shares of the business in your Will)
- Any nominated property
Get in touch with our team for a free one hour appointment to discuss making or updating your Will – call 0800 788 0500. We have a whole host of ways to meet with you during the Coronavirus crisis – see our direct appointments page for more information.