Severing a joint tenancy is an important legal step that can have significant tax consequences. Whether you’re planning for your inheritance or a property sale, understanding the tax implications is essential to make informed decisions.
Inheritance Tax Considerations
When you initiate the severance of joint tenancy, the property ownership changes from joint tenants to tenants in common. This means that each co-owner can pass on their share of the property in their will, which can reduce the inheritance tax burden. Under joint tenancy, the entire property passes to the surviving co-owner, which could push the estate’s value above the inheritance tax threshold.
Severing the joint tenancy can be particularly beneficial for those looking to manage their estate more effectively. For example, by dividing the property into unequal shares.
Capital Gains Tax Impact
Capital gains tax (CGT) can also be affected when a joint tenancy is severed. As tenants in common, each co-owner is responsible for paying CGT on their share of any profit made when the property is sold. Each co-owner benefits from their own CGT allowance, which can reduce the amount of tax due. GOV.UK has a guide on CGT here:
By severing the joint tenancy, co-owners can ensure that their share of the property is taxed separately, allowing them to manage their financial responsibilities more effectively.
Stamp Duty Land Tax Considerations
Severing a joint tenancy can also have implications for Stamp Duty Land Tax (SDLT). If the property ownership is transferred or if one party buys out the other’s share after severing the joint tenancy, SDLT may be applicable depending on the value of the transaction.
However, in some cases, SDLT may not apply, particularly if the transfer occurs between spouses or civil partners. This exemption can be an advantage when making ownership changes. Professional advice from a specialist such as Parachute Law can give more insight into your particular situation.
Severing a joint tenancy can offer several tax advantages, but careful planning is necessary to avoid unexpected liabilities. Always seek professional advice to navigate the complexities of tax and property ownership.
