IHT and Jointly Owned Property: JT vs TIC, Spouse Exemption, and Transferable Allowances

When you buy with someone, the choice of joint tenants or tenants in common often gets settled with a tick on a TR1 form, as if it were paperwork. For your inheritance tax plan it is anything but. The survivorship mechanic of joint tenancy and the devise-by-will mechanic of tenancy in common send your estate down different routes through IHT, and the gap between them shows up most when the combined second-death estate approaches or passes the £2 million residence-nil-rate-band taper threshold. Below £1 million it rarely matters; above £2 million it can cost your children a large IHT bill that the right structure would have avoided.

What follows is the choice through an IHT lens: the s.18 spouse exemption, the first-death nil-rate band, the transferable NRB and transferable RNRB, the £2 million taper trap, and the s.142 deed of variation as a post-death fix. For the second-death calculation in full detail (the TNRB and TRNRB claim on a portfolio estate), see the IHT spouse exemption second-death window page.

Joint tenancy and the survivorship mechanic

Joint tenancy is undivided ownership: each joint tenant owns the whole property jointly with the other, with no specific share. On the death of one joint tenant the whole property passes automatically to the survivor, outside the will. That automatic transfer is the "right of survivorship" (jus accrescendi), the defining feature of joint tenancy in English and Welsh land law, with equivalent rules in Scotland and Northern Ireland.

For IHT, the position is:

• The deceased joint tenant's interest forms part of their estate for IHT computation (IHTA 1984 s.5). HMRC's IHTM15040 confirms the working position: the deceased's interest is conventionally valued at 50% of the net equity (or other appropriate share for more than two joint tenants).
• The transfer of the deceased's interest to the surviving spouse by survivorship is a transfer between spouses; IHTA 1984 s.18 exempts it from IHT.
• The deceased's nil-rate band is not used on the first death because no IHT is chargeable (the s.18 exemption operates in full). The unused proportion becomes claimable by the surviving spouse's executors on second death under the transferable NRB rules.

The appeal is the simplicity. The surviving spouse takes the whole property without probate of the deceased's interest for that asset (probate is still needed for the rest of the estate). If your combined estate is modest, that simplicity is usually the right answer.

Tenancy in common and devise by will

Tenants in common hold divisible shares. Your share is part of your separate estate, and on death it passes by your will (or under the intestacy rules if you leave no will). The IHT consequences turn on who you leave the share to:

• Left to the surviving spouse: covered by the s.18 spouse exemption, no IHT on first death, the first-death NRB is unused and transfers to the survivor under s.8A.
• Left to a non-spouse (children, grandchildren, trust, charity): not within s.18. The transfer uses the deceased's nil-rate band on first death; any value above the NRB (and above any RNRB available) is chargeable to IHT at 40%.
• Left into a flexible life-interest trust for the spouse with remainder to children: a quasi-spouse exemption applies for the life-interest portion (the trust is a "qualifying interest in possession" under IHTA 1984 s.49 with the spouse exemption applying); the remainder to children is a separate calculation. These trusts (sometimes called immediate post-death interest trusts) are the modern structural alternative to outright spouse-only inheritance.

The flexibility is the upside. The cost is the extra conveyancing: a deed of trust setting out the shares, a Form A restriction on the Land Registry title, and a will that actually makes the non-spouse dispositions. Below the combined £1 million NRB + RNRB threshold, that flexibility rarely earns its keep. Above £2 million, you usually need it.

The transferable NRB and the case for joint tenancy

Until 9 October 2007 a deceased spouse's unused NRB could not pass to the survivor, so the standard fix was tenancy in common plus an NRB discretionary trust: direct a share into a trust for the children and lock in the first-death NRB before it was lost. The transferable NRB, brought in by FA 2008 (inserting IHTA 1984 s.8A), took most of the point out of that planning.

The transferable NRB mechanic works as follows:

• On the death of the first spouse, the unused proportion of their NRB is calculated. Where 100% of the first-death estate is covered by the s.18 spouse exemption (typical for a couple leaving everything to each other), 100% of the first-death NRB is unused.
• On the death of the surviving spouse, the executors claim the unused proportion of the deceased's NRB and add it to the survivor's own NRB. At current frozen rates the maximum total NRB on second death is £325,000 + £325,000 = £650,000.
• The claim is made via HMRC form IHT402 filed with the second-death IHT400. Documentary evidence of the first death and the unused NRB is required.

The transferable NRB closes most of the old gap between the two structures on second-death IHT. They give the same NRB outcome, as long as the survivor's executors actually make the claim on second death. What still separates them is the RNRB taper (below) and the freedom, with tenancy in common, to redirect part of your first-death share to a non-spouse on the deed.

The £2 million RNRB taper trap

The residence nil-rate band (currently £175,000 per person, frozen at that level to 5 April 2031) loses £1 for every £2 by which the net estate at death exceeds £2 million (IHTA 1984 s.8D). If your combined estate is anywhere near £2 million, this taper is the constraint that decides the structure.

Here is how it bites at the frozen amounts:

• £2,000,000 estate: full £175,000 RNRB (no taper applied yet).
• £2,350,000 estate: RNRB fully extinguished (the £350,000 excess over £2m has reduced RNRB by £175,000).
• £2,700,000 estate: also fully extinguished for a couple claiming TRNRB (the £700,000 excess reduces the combined RNRB of £350,000 to zero).

On a joint tenancy, the second-death estate is the two estates rolled into one: everything the first spouse owned passes to the survivor under s.18 and lands in the survivor's estate. A £1.4 million combined estate at first death is typically still around £1.4 million at second death (after inflation and modest dissipation), so both RNRBs survive and the taper does not bite.

At a £2.5 million consolidated second-death estate, the story changes. The combined RNRB of £350,000 tapers away to nothing under s.8D, and your children inherit a far larger IHT bill than they would with tenants in common plus a will that caps the first-death transfer to the survivor at the s.18-exempt level.

Transferable RNRB

Like the NRB, the RNRB transfers between spouses under IHTA 1984 s.8G on a percentage basis. Where the deceased spouse's RNRB went unused (because the family home and everything else passed to the survivor under s.18), the survivor's executors can claim 100% of it on second death. With the survivor's own RNRB on top, the maximum on second death is £350,000.

You claim it on HMRC form IHT436. The conditions:

• The deceased spouse must have died on or after 6 April 2017 (the RNRB introduction date).
• The surviving spouse's second death must involve a family home that is being closely inherited (passed to lineal descendants).
• The £2m taper applies to the survivor's second-death estate; where the consolidated estate is in taper territory the transferable RNRB tapers away alongside the survivor's own.

The downsizing addition in IHTA 1984 s.8FA-8FE preserves the RNRB where the deceased downsized (or sold up) before death, provided the conditions on timing and replacement are met. This comes up often where the family home was sold to fund care: the addition can keep the RNRB on the deceased's estate even though no qualifying residential interest is owned at death.

Worked example: the Iqbal couple's £1.4m portfolio

Mr and Mrs Iqbal own a family home in Surrey worth £600,000 (no mortgage) and a buy-to-let portfolio of three properties worth £800,000 (gross) with combined mortgages of £200,000, giving £600,000 net BTL equity. The combined net estate at first death is therefore £1.2 million (£600,000 family home plus £600,000 BTL net equity). They have two adult children.

Scenario 1 (joint tenancy throughout). Mrs Iqbal dies first. By survivorship Mr Iqbal takes the family home and the BTL portfolio. The s.18 exemption applies; no IHT on first death; both first-death allowances (NRB and RNRB) are 100% unused and transferable. On Mr Iqbal's second death (assuming the net estate is broadly £1.2m at that point), his executors claim both transferable allowances. The second-death IHT computation:

• Combined NRB: 2 × £325,000 = £650,000.
• Combined RNRB (estate below £2m, no taper): 2 × £175,000 = £350,000.
• Total IHT-free band: £1,000,000.
• Chargeable second-death estate: £1.2m − £1m = £200,000.
• IHT: £200,000 × 40% = £80,000.

Scenario 2 (tenants in common throughout, Mrs Iqbal's will directing 100% of her half of both properties to the survivor). Identical to Scenario 1: same s.18 exemption, same transferable allowances, same second-death IHT of £80,000. In the straightforward case below the £2m taper, joint tenancy and tenants in common land in the same place.

Scenario 3 (tenants in common, Mrs Iqbal's will directs her £300,000 share of the BTL portfolio to the children outright, balance to the survivor). On first death:

• £300,000 to children (Mrs Iqbal's half of the BTL net equity): uses Mrs Iqbal's £325,000 NRB, leaving £25,000 of her NRB unused for later transfer.
• £300,000 to survivor (Mrs Iqbal's half of the family home): exempt under s.18.
• No IHT due on first death.

On Mr Iqbal's second death the survivor's estate is the £1.2m starting position minus the £300,000 already passed to children at first death, i.e. £900,000. His estate's allowances: his own £325,000 NRB + Mrs Iqbal's transferred unused £25,000 = £350,000 of NRB; his £175,000 RNRB + Mrs Iqbal's transferred £175,000 (unused because her share of the family home went under s.18) = £350,000 of RNRB. Total IHT-free band: £700,000. Chargeable second-death estate: £900,000 − £700,000 = £200,000. IHT: £200,000 × 40% = £80,000. The same total tax.

The Iqbal numbers make the point: on a £1.2m estate, where the £2m taper never bites, the structure does not move the dial. Push the estate to £2.3m+ and the picture splits. On the joint-tenancy route the taper erodes the survivor's RNRB; the tenants-in-common route, by holding the survivor's net estate below £2m, keeps the RNRBs intact and lands a materially lower second-death bill.

The s.142 deed of variation: post-death rebalancing

If the wrong structure was in place at first death and you only see the consequences afterwards, the corrective is the deed of variation under IHTA 1984 s.142. It redirects the first-death share (received by survivorship on a joint tenancy, or by will on tenancy in common) to non-spouse beneficiaries, and for IHT the redirection is treated as if the deceased had made it.

The conditions:

• The variation must be in writing, executed within 2 years of the deceased's death.
• It must be signed by the beneficiaries whose entitlements are being altered (typically the surviving spouse for survivorship redirections).
• The deed must contain a statement that it is intended to take effect for IHT purposes under s.142(1). Without the statement the deed has no IHT effect (although it may have civil-law effect).
• For deeds that change the destination of IHT-relevant property the executors must notify HMRC within 6 months of the deed (s.218A).

On a joint tenancy the usual move is for the surviving spouse to vary the deceased's deemed disposition so that part of the property, in value terms, is treated as having passed to the children rather than to the survivor. That uses the £325,000 first-death NRB on the children's share and shrinks the survivor's estate. Where the estate would otherwise sit in £2m+ taper territory on second death, the deed of variation is the standard mid-life corrective.

For the s.142 conditions in depth and worked examples on redirected estates, see our deed of variation page.

The unmarried co-owner contrast

All of the above assumes you are married or in a civil partnership, within the s.18 spouse exemption. If you co-own as an unmarried couple, the picture is much tighter:

• No s.18 exemption. Transfers between unmarried co-owners on death (whether by survivorship for joint tenants or by will for tenants in common) are chargeable transfers, not exempt.
• NRB and RNRB available against the chargeable transfer. Each cohabitee has their own £325,000 NRB and £175,000 RNRB, applied against any IHT charge on first death.
• Transferable allowances do not apply. The transferable NRB and transferable RNRB mechanics are reserved for spouses and civil partners under IHTA 1984 s.8A(7) and s.8G; cohabitees cannot inherit unused allowances from the deceased's estate.
• Lifetime gifting strategies are the standard route. Cohabitees typically rely on lifetime gifting (PETs out of the chargeable estate over the 7-year clock under IHTA 1984 s.3A) plus life insurance written in trust to mitigate the absence of the spouse exemption.

For the wider unmarried co-owner tax position, see our unmarried co-owners page. The gap hurts most for property-rich cohabiting couples, where the £325,000 NRB is small next to the value of one partner's share.

Where to go next on your IHT plan

Once the structure is settled, two pages take the mechanics further:

• The IHT spouse-exemption second-death window page works the second-death calculation in detail, including the TNRB and TRNRB claim on a portfolio estate.
• The RNRB £2m taper page works the taper in depth on portfolio estates.

For lifetime planning alongside the structure, see our 7-year clock and mid-life gifting page, the 2026-onwards IHT decision framework page, and the JT vs TIC general tax-consequence page for the wider, non-IHT differences between the two.

You set the structure at purchase (or later, by severance), but the consequences run for decades. The right answer turns on your consolidated estate value, how you expect your children to inherit, and how close you are to the £2m RNRB taper. Below £1 million combined, joint tenancy is usually right. Above £2 million, tenants in common with a properly drafted will usually wins. Between £1m and £2m it is genuinely fact-specific, and that is exactly where modelling the numbers, before you commit, pays for itself. If your estate is anywhere near that band, talk to us and we will run both routes on your actual figures.