Tenants in common and inheritance tax

Owning your home as tenants in common is something many people come across when they’re updating their wills or thinking about the future. It’s a simple change in how a property is held, but it can make a real difference when it comes to inheritance tax and the way assets pass to loved ones.

If you’re unsure whether tenants in common is right for you, or you’ve heard conflicting advice, you’re not alone. It’s a topic that comes up often in conversations with clients, and once it’s explained in plain English, it usually feels far less daunting.

What does tenants in common actually mean?

When a property is owned jointly, there are two possible structures: joint tenants or tenants in common.

With joint tenants, both owners effectively share the whole property. If one person dies, their share passes automatically to the other. It doesn’t form part of their estate for their will to deal with.

With tenants in common, each person owns a defined share. That might be 50/50, but it doesn’t have to be. Crucially, when one owner dies, their share does pass under their will. That extra control is what makes the arrangement so useful for inheritance tax planning.

How tenants in common can help with inheritance tax

For many couples and families, the main appeal of tenants in common is the flexibility. Because your share of the property passes through your will, you have more choice over what happens to it and how it fits into your wider inheritance tax planning.

Making use of reliefs and allowances

If you decide to leave your share to your spouse or civil partner, the spouse exemption usually applies. That means no inheritance tax on that part of the estate. Holding the property as tenants in common simply gives you more control over how the exemption is used.

You can also plan more effectively around your nil rate band – the tax-free allowance available on death. Some people choose to leave their share to children or into a trust, while still allowing a surviving partner the right to stay in the home. Arrangements like this can help preserve tax allowances that might otherwise be lost.

Using life interest trusts

One of the most common planning tools is a life interest trust. In simple terms, you leave your share of the home into a trust. Your partner can live in the property for life, and when they die, the property passes to your chosen beneficiaries.

Clients often choose this route to:

• Protect their estate if their partner remarries.
• Make sure children from a previous relationship inherit.
• Use both partners’ tax allowances.
• Keep the family home protected for the long term.

Protecting the residence nil rate band 

The residence nil rate band offers an additional allowance when leaving a home to direct descendants. Holding a property as tenants in common means your share can pass under your will in a way that preserves this relief. It’s a valuable allowance and worth planning for carefully.

Pitfalls to be aware of

Tenants in common isn’t always the answer, and it’s important to understand the potential downsides.

Leaving a share of the home outright to children, for example, can make life complicated for a surviving partner still living there. Lifetime gifts of property can affect capital gains tax or later-life planning. Poor drafting can lead to disputes or unexpected tax bills. And the rules around the residence nil rate band can be trickier than they appear.

None of these issues are insurmountable. They just highlight why tailored advice matters.

How we help

At Thomas Mansfield Solicitors, we work with individuals, couples and families who want to understand how tenants in common and inheritance tax planning might fit into their wider goals. We explain the options clearly, whether you’re reviewing your will, planning ahead for the future or looking to protect your home for the next generation.

We can:

• Advise on changing ownership to tenants in common.
• Prepare wills and trusts that protect your property.
• Structure life interest trusts.
• Guide you through inheritance tax reliefs and allowances.
• Ensure your planning is practical, tax-efficient and suited to your family.

If you’d like to discuss tenants in common and inheritance tax in more detail, we’re here to help you make informed, confident decisions about your estate and your future.

Emma Howlett