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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am a UK national. My wife is from NZ. We live in HK. We own

Customer Question

I am a UK national. My wife is from NZ. We live in HK. We own one house in the UK and are about to purchase another investment property. The likely value of the properties will be greater than 700K GPB in the event of our death.
What is the best approach to purchase the house: joint tennants vs tennants in common.
Assumptions: we don't get divorced. We want to pay as little death tax as possible.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. UK Inheritance Tax (IHT) kicks in at 325K and is at 40% flat rate on assets above that on death. The 325K is inflated by any charitable of inter spousal bequests. On the demise of the remaining partner then the same rules apply, but the survivor can inherit any unused 325K from the other making a theoretical 650K tax free available. The 2015 Budget made significant changes to the IHT position making it possible for children to inherit a home up to 1m from April 2020. From April 2017 a Family Home Allowance is introduced. Here is The Telegraph's guidance on the subject: 'This will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. This will allow individuals to pass on assets worth up to £500,000, including a family home, without paying any IHT at all. For married couples and civil partners, the total is £1m.' These sums are added to the existing 325K limit. I would suggest that you buy as joint owners, 50/50. If you buy as tenants in common you can vary the proportions, but equally one can sell up their share without the others consent. I know you said you do not intend to divorce, but current statistics show that the incidence of over 60s divorces and separations is on the increase, so you should be warned as to the consequences. I do hope that my reply has shed some light on your situation.
Expert:  bigduckontax replied 1 year ago.
Here is a further concession I forgot to mention [same source]:
'Anyone who wants to downsize to a smaller property will be eligible for an “inheritance tax credit” so that even if they sell an expensive property they will still qualify for the new threshold providing the bulk of the estate is left to direct descendants.
This is an attempt to encourage pensioners to free up larger properties for growing families.'
Customer: replied 1 year ago.
So joint tenants ? What is the disadvantage of this approach ?
Expert:  bigduckontax replied 1 year ago.
Sorry my nomenclature; joint tenants is the legal term for joint owners.
Customer: replied 1 year ago.
Please Confirm that the 500k allowance applies to a non UK national (my wife)
Expert:  bigduckontax replied 1 year ago.
I an sorry, but to which 500K do you refer. The 1m allowance post 2020 applies to descendants not spouses. Inter spousal transfers and bequests are outside the scope of UK taxation.
Customer: replied 1 year ago.
This will allow individuals to pass on assets worth up to £500,000, including a family home, without paying any IHT at all. For married couples and civil partners, the total is £1m.'-Q1: does this apply to non resident, noN British passport holders (my wife)n the demise of the remaining partner then the same rules apply, but the survivor can inherit any unused 325K from the other making a theoretical 650K tax free available.Q2. does this apply to non resident, non-British passport holders (my wife)
Expert:  bigduckontax replied 1 year ago.
This is the post April 2020 ruling and applies to descendants not to wives. Wives receive inheritances from their spouses free of any IHT; they are outside the scope of the tax. IHT applies to assets held in the UK on death irrespective of citizenship and domicile and the normal rules apply. As I told you there is always the potential of a 650K tax free allowance following a second death. There is also the possibility of the Family Home Allowance post April 2017 running up to the million by 2020, but only for descendants of the deceased. It is not a carte blanche concession open to all and sundry.
Customer: replied 1 year ago.
I am new to justanswer.
It would be easier to speak but unsure how this changes the fee
Expert:  bigduckontax replied 1 year ago.
Normally I would be happy to accept a telephone request, but unfortunately I am responding from a time zone 7 hours ahead of GMT which would make the process more than a tad expensive. Best stick to this thread. Clearly you need some more information, but I would emphasise that when anyone in your spouse's situation dies anywhere in the world their UK assets are aggregated and exposed to UK IHT. Were she a UK resident then all assets world wide would be aggregated.
Customer: replied 1 year ago.
Ok - so in short. Our kids will get potentially a million consideration when we both are dead before having to pay tax. Assuming I die first she will need to pay tax on anything over 650k sterling at 40 pct unless we gift them property 7 years before the last surviving spouse dies. Finally, your advice is to go for joint tenants. What are the disadvantage of joint tennants (if any) Please confirm the above is correct.
Expert:  bigduckontax replied 1 year ago.
Only the family home comes within the million tax free concession post April 2020. There is no tax due on inter spousal transfers or bequests. However, if you pre decease her then on her demise she can inherit any unused 325K from your estate. You are correct in your surmise of the 7 year rule regarding gifts. These gifts form a Potentially Exempt Transfer (PET) under IHT rules. PETs run off at a taper over 7 years and are added back to an estate for IHT and are the first to suffer tax. In the event of the estate being insufficient to meet the tax on the PET the liability cascades down to the beneficiary for immediate payment. As far as I am aware Joint Tenancies have no disadvantages and are very a common form of property holding.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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