Tenants in common schemes
Recent changes could affect your estate planning

Thousands of families that have entered into arrangements to protect them against inheritance tax (IHT), which involves splitting the value of a property between a husband and wife, and is aimed at lessening the tax burden - could now face higher tax bills. This follows a recent Special Commissioners ruling from the body which settles disputes between HM Revenue & Customs and taxpayers. The ruling could have a major impact on couples that have taken out "tenants in common" schemes to protect their estates and their children from paying the tax.

How the changes could affect your planning.

Q: What is a nil rate band discretionary trust?
A: This is a trust set up for the purpose of protecting the IHT nil rate band allowance (currently £300,000 – tax year 2007/08) of the first person to die.

Q: My partner and I own our property as joint tenants. Does it affect us?
A: This ruling won't directly affect anyone who hasn't set up a discretionary trust, regardless of whether the property is owned as joint tenants or tenants in common.

Q: My partner and I own our property as tenants in common. Does it affect us?
A: As the previous answer, but this tax ruling should be taken into account by anyone considering setting up a trust or changing the basis of how the property is owned. Professional advice should always be obtained before taking any such decision.

Q: I work but my partner does not as he looks after the children. Could this affect us?
A: It would appear this will only potentially affect people in this position who set up a discretionary trust. If the property is jointly owned, whether as joint tenants or tenants in common, but there is no discretionary trust arrangement this decision does not appear to have any direct effect. However, Gordon Brown declared war on tax avoidance to such an extent that one can no longer be sure that any tax avoidance arrangements will be effective and some schemes which were not illegal have retrospectively been made so.

Q: What should we do?
A: As a result of this ruling anyone who has set up a discretionary trust, and perhaps any other type of trust, should seek professional advice. For people who haven't set up a trust there is no need to do anything as a result of this ruling.

If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

Levels and bases of, and reliefs from, taxation are subject to change.
Article date: 06.07