Should I Take Out A Tenants In Common Agreement?Posted on: 15 July 2009 by Gareth Hargreaves
Independent financial advisor Peter McGahan offers advice to 50connect reader Frank about the benefits of arranging a tenants in common agreement.
Tenants in common is one of the only a few remaining vehicles to get around the taxman and reduce your inheritance tax bill. It could also prevent you having to sell your home if you need to go into long-term care. All you need to do is change the ownership of your home from joint names to being tenants in common.
"My wife and I are considering organising a T.I.C. on our home. The property is currently registered in my name only. Some suggestions would be appreciated.
"The reason for taking this action is to avoid the possibility of having to sell the property to pay for care if either of us are unable to look after ourselves, and obviously leave the property to our children when we die."
Tenants in common is an interesting subject that in the first instance relates back to Inheritance tax planning. Faced with the opposition claiming they were going to increase the nil rate band to £1 million, the current government decided they needed to do something quickly.
But why would a government who needs money give it away, I thought? Clearly the opposition didn’t have it to give away and would probably have altered the capital gains rules on death to regain the estimated £4 billion revenue loss.
It is when you look a little closer you can see that the issues are more in relation to long term care or future reliance on the state. Inheritance tax only attacks 40% of your assets in excess of the nil rate band, but care costs attack almost 100%.
My cynical (but probably very accurate) view is that care costs, or any costs where we can become more reliant on the state could easily be the target. In a nation where we are living longer, the ratio of workers and taxpayers to retired people is shrinking. It would appear that the burden of maintaining benefits at retirement could fall in the hands of those who are retired but who have resources.
The changes to the Inheritance tax rules can easily allow you to become apathetic about your planning but my view is that you should consider using your trust planning as before.
Consider that on first death you can give your tenancy in common in your house into trust for example. Your surviving spouse would now be able to live there as normal.
What is the surviving spouse’s value of the house worth? In the open market, a house is worth what someone is prepared to pay for it. What would you pay for a half share in a house when you have to share the property with someone else forever?
How would you ever sell that ownership on? Exactly, it’s virtually valueless to an open market. And so the local authorities have to take that as the value of the estate when assessing your need for care and associated costs.
Before doing this take independent financial advice from a fee based independent financial adviser to ensure this doesn’t cut across any other aspects of your financial planning and your advisor will work with your solicitor to set this up. The independent financial advisor will only look at the financial side but your solicitor will look perform most of the actions by completing the severance of joint tenancy and then setting up the tenancy in common.
If you have any queries please feel free to contact me on www.wwfp.net.
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