Tenants in Common or Joint Tenants for future tax planning?

by Readers Question

13:42 PM, 13th February 2017
About 2 years ago

Tenants in Common or Joint Tenants for future tax planning?

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Tenants in Common or Joint Tenants for future tax planning?

As it stands Mr and Mrs Smith have no other income apart from rental income and hence would want to split rental income 50:50. However Mr Smith may take on salaried employment in the future and so will want to change the 50:50 split in the future to something that favours Mrs Smith eg 90:10.Joint tenants

Is purchasing as tenants in common in equal shares the most appropriate way to accommodate this?

Thanks in advance.

Sanjiv



Comments

Mark Alexander

7:44 AM, 14th February 2017
About 2 years ago

Hi Sanjiv

If Mr & Mrs Smith were to on the property on the basis of Joint Tenancy there would be less of a need to make Will. This is because they jointly 100% of the property. If one of them was to die the other would still own 100% of the property. If they were to purchase as tenants in common they would need to make a Will if they wanted to be certain the survivor got the share of the deceased. HMRC will treat Joint Tenancy as 50/50 for tax purposes.

Joint Tenancy is relatively easy to sever, which is a requirement if Mr & Mrs Smith would want HMRC to tax on something other than a 50/50 basis. They would also need a Declaration of trust to be drawn up to establish ownership of the beneficial interests and to file Form 17 with HMRC.

I don't think it is possible to say what the right answer is from the outset based on the above. It is a case of making a considered choice.
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CazT

13:44 PM, 14th February 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "14/02/2017 - 07:44":

I might be wrong here but if tax is being paid incorrectly, HMRC can and will do an investigation to ensure they have been paid the correct amount earned from previous lettings? Any thoughts on that Mark.....

Mark Alexander

15:54 PM, 14th February 2017
About 2 years ago

Reply to the comment left by "CazT " at "14/02/2017 - 13:44":

They can indeed
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Edwin Cowper

13:57 PM, 18th February 2017
About 2 years ago

"less of a reason to make a will" - I think anyone who has assets is unwise to make a will -if you have buy to let especially. Suppose both spouses get killed with no wills in a car accident? Or one dies and the other dies ? What about cgt planning? What about inheritance tax planning?

It is always unwise to make a decision without considering the knock on effect may be. You might save one tax and walk into another.

Do you know the provisions of the law on intestacy (now will). I expect they would horrify you.

And also do a lasting power of attorney . What happens if you become non compos mentis ? If none, and you have sole assets (or death of one in a car crash and other injured so cant deal with affairs or have children). Answer -someone has to apply to the Court of Protection.
Wonderful

Sorry if I sound a Job's Comforter but these are real issues. And just to make it even better - what if you have to go into long term care? Most if not all of your hard earned money can be swallowed up without proper property planning.

As you may guess, I used to be a lawyer dealing with a lot of these issues. But they are real. Whilst a lot of the advice on here is very good, it is sensible to always consider whether you are solving one problem but then unwittingly causing another.

Take care

Edwin Cowper

14:20 PM, 18th February 2017
About 2 years ago

Although I typed "unwise not to make a will" for some reason it posted "unwise to make a will"

NOT the case at all. Definitely make them even if you are only very young. Especially if you are not married/not in civil partnership

CazT

10:56 AM, 19th February 2017
About 2 years ago

Reply to the comment left by "Edwin Cowper" at "18/02/2017 - 14:20":

Edwin is absolutely right to emphasise the need for wills (if nothing else) and Lasting Power of Attorney. There have been two incidents on the small estate of bungalows I live in, whereby the elderly couples were not married and had not made wills or LPA's. Upon the death of both of these gentlemen's partners, the family moved very quickly to get them out of 'their' home. Both of these elderly men were grief-stricken and to add homelessness, near poverty and all the challenges of re-establishing their own homes, changed them and their lives overnight. To say "oh, that would never happen to me, our families will take care of me" is living in cloud cuckoo land. The first thing the departed's family did was to give them both notice to move out asap and they were only allowed to take their most personal belongings!
I was incredulous at the behaviour toward the 'widowers', but these grieving gentlemen had absolutely NO rights at all, so please, whatever your circumstances- do a will and an LPA asap.

Edwin Cowper

19:26 PM, 19th February 2017
About 2 years ago

Thanks for your illustration of nasties that can happen.

However, people in those situations should always consult a good solicitor. The reason is that there may be a claim under the Inheritance (Provision for Family and Dependents) Act 1975. That allows the court to make provision for eg a cohabitee out of a deceased person's estate. I don't know how far that order may go. But if anyone has been supported by a deceased person there is a chance of success. But you need a switched on solicitor who might negotiate a deal.

Everyone hates lawyers til they need one!!

CazT

10:31 AM, 20th February 2017
About 2 years ago

Reply to the comment left by "Edwin Cowper" at "19/02/2017 - 19:26":

I agree100% with what you are saying Edwin, but most people of their age and circumstances are so shocked by the behaviour of their partner's families, that they are unable to cope with post-death legalities. The families concerned will almost certainly have taken legal advice themselves, so these poor men were literally turned out of their homes.

I guess what I'm trying to say is that there needs to be more information provided for the elderly that came before the "baby boomers" as they are the least knowledgeable regarding all the circumstances that arise upon their deaths. How that could happen is a whole other story.....


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