For individuals in second marriages, particularly when one spouse is the sole owner of the family home, understanding inheritance tax and potential care fee implications is crucial for effective estate planning. Tax expert Heather Rogers addresses common concerns regarding property deeds, inheritance tax allowances, and long-term care costs.
The primary inheritance tax threshold, known as the nil rate band, is £325,000 per person, or £650,000 for a couple. An additional residence nil rate band (RNRB) of up to £175,000 per person (£350,000 for a couple) can be applied if a property is passed to direct descendants. This RNRB is available on estates valued below £2 million and is reduced for larger estates.
A common misconception is that the RNRB cannot be utilized if the family home is solely in one spouse's name. However, Rogers explains that the RNRB is transferable between spouses, similar to the nil rate band. If one spouse dies first, any unused RNRB and nil rate band can be passed to the surviving spouse, provided the estate qualifies for the RNRB.
Property Ownership Structures
There are two main ways to own property as a couple: joint tenants and tenants in common.
Joint tenants own the property together, and upon the death of the first owner, the property automatically passes to the surviving spouse due to survivorship rules, regardless of their will. This can be a concern for couples with children from previous relationships.
Tenants in common, conversely, means each owner holds a specific, defined share of the property. This allows individuals to specify in their will what happens to their share upon their death. It does not automatically pass to the other co-owner.
Implications for Care Fees
When considering care home needs, the family home is typically discounted if the other spouse continues to reside there. However, if a property remains in one spouse's sole name and that spouse requires care while the other is no longer living there, the entire property could be used to fund care.
To mitigate this risk, a property could be transferred to be held as tenants in common, with each spouse owning a 50% share. Both spouses can then create an interest in possession (life interest) trust in their wills. This type of trust, often referred to as a property life interest trust, can protect half of the property from being assessed for care fees for the surviving spouse. Such trusts are unlikely to be viewed as a 'deprivation of assets' by local authorities and can also protect beneficiaries from disinheritance.
First Husband's Estate
Rogers also notes that the deceased first husband's estate may have had an available nil rate band, though not an RNRB as it did not exist at the time of his death. Depending on how his estate was handled, this allowance may still be available. Careful will drafting is necessary to ensure this potential allowance is not lost.
For individuals with complex family situations, such as remarriages and blended families, consulting with a solicitor specializing in wills, trusts, and probate is recommended. They can provide tailored advice and assist with necessary legal documentation, including changes to property deeds and new wills.