Inheritance Tax on Jointly Owned Assets

Inheritance tax on jointly owned assets is an area where the rules are frequently misunderstood, even by experienced executors. The fundamental principle of English property law is that the tax treatment of jointly owned assets for inheritance tax purposes depends not on the fact of joint ownership, but on its legal character — specifically, whether the co-owners hold the asset as joint tenants or as tenants in common. The distinction matters because it determines both what share of the asset falls into the deceased’s estate and how that share is valued. Getting it wrong can mean either overpaying or underpaying inheritance tax, both of which carry consequences.

Joint ownership arises most commonly in relation to the family home, joint bank accounts, and jointly held investments. But the rules extend to business partnerships, jointly owned buy-to-let properties, and even jointly held National Savings accounts. Each category has its own valuation conventions and potential reliefs, and the executor must identify the nature of every jointly held asset before completing the IHT400 supplementary schedules.

This guide explains the key rules for each type of joint ownership, the spouse exemption as it applies to joint assets, the valuation discount for tenants in common shares, and the practical steps executors need to take. For a broader overview of inheritance tax liability in the estate, see our inheritance tax guide and our advice on executor duties.

Joint Tenancy vs Tenants in Common: The IHT Difference

Where two or more people own an asset as joint tenants, the ownership is indivisible. Each owner holds an equal and undivided share of the whole asset, and on the death of one owner the asset passes automatically to the survivors by the rule of survivorship — it does not form part of the deceased’s estate under their will or the intestacy rules. However, for inheritance tax purposes, the deceased’s notional share of the asset (usually a half share in a two-person joint tenancy) is still included in the taxable estate under s.4 IHTA 1984 as if it had passed under the will. The surviving owner inherits free of probate, but the IHT charge falls on the deceased’s estate nonetheless.

Where the co-owners hold as tenants in common, the ownership is divided into specific shares — which may or may not be equal. Each owner’s share forms part of their estate on death and passes under their will or the intestacy rules rather than by survivorship. The deceased’s share must be valued and included in the IHT400. Tenancies in common are common where unmarried couples, business partners, or family members own property together and wish to control the destination of their individual share on death.

Valuing a Tenants in Common Share: The Undivided Share Discount

Where the deceased held a property as a tenant in common with another party who is not their spouse or civil partner, HMRC accepts that the open market value of the deceased’s share is less than a simple pro-rata fraction of the whole property’s value. This is because a buyer of an undivided share in a property cannot force a sale without a court order, making such shares inherently less attractive and less liquid than a share in a wholly owned asset. Depending on the circumstances, HMRC’s District Valuer will typically allow a discount of between 10% and 15% on an undivided share — though the precise discount is negotiable and depends on factors such as the identity of the co-owner and the terms of any co-ownership agreement.

HMRC provides guidance on passing on a home on GOV.UK, including worked examples involving jointly owned property.

Jointly Owned Bank Accounts and Investments

Joint bank accounts present a particular challenge because the beneficial ownership of the funds may not reflect the names on the account. Where a parent adds an adult child to a bank account purely for convenience — to allow them to manage transactions or access funds in an emergency — the child may have no beneficial interest in the account at all. In that case, the full balance belongs to the parent’s estate for inheritance tax purposes, regardless of the joint account status.

Conversely, where two spouses or civil partners genuinely contribute to and benefit from a joint account in broadly equal shares, each partner’s half share is attributable to their respective estate. On the death of the first spouse, the surviving spouse’s share is not part of the taxable estate (it belongs to the survivor), and the deceased’s share passes to the survivor free of IHT under the spouse exemption. Executors must examine the factual history of contribution and use to determine the true beneficial ownership.

For jointly held investment portfolios, ISAs, and National Savings products, similar principles apply. ISAs do not pass by survivorship in the way that joint accounts do — on death the ISA wrapper ceases for the deceased’s share, though the surviving spouse or civil partner may be entitled to an additional ISA allowance equal to the value of the deceased’s ISA.

The Spouse Exemption on Jointly Owned Assets

Under s.18 IHTA 1984, transfers between UK-domiciled spouses and civil partners are completely exempt from inheritance tax, whether made during lifetime or on death. This means that where a jointly owned asset passes to the surviving spouse — whether by survivorship under a joint tenancy or by inheritance under the will — no inheritance tax is payable on the transfer. The asset does, however, form part of the surviving spouse’s estate on their eventual death, and proper estate planning should account for the combined value of both spouses’ assets when estimating the eventual IHT liability.

The spouse exemption does not apply to unmarried cohabiting partners, regardless of how long they have lived together. Where an unmarried couple own a home jointly and one partner dies, the surviving partner must pay inheritance tax on the deceased partner’s share if the estate as a whole exceeds the nil-rate band. This is one of the most powerful arguments for making a will and undertaking proper estate planning — see our estate administration guide for context.

Business and Agricultural Property in Joint Ownership

Where jointly owned assets qualify for Business Property Relief (BPR) under s.105 IHTA 1984 or Agricultural Property Relief (APR) under s.116 IHTA 1984, the relief applies to the deceased’s share of the asset in the same way it would apply to wholly owned assets. BPR can reduce the taxable value of qualifying business assets by 50% or 100% depending on the asset type. APR can similarly reduce the value of qualifying agricultural land and property. Both reliefs require the asset to have been held for the minimum qualifying period (two years for BPR, two years or seven years for APR depending on the use) and are subject to conditions around the nature of the business or farming activity.

Joint ownership of business assets between family members is common in farming and family business contexts, and the interaction between joint ownership, BPR or APR, and the IHT calculation can be complex. Professional advice from a solicitor specialising in estate and agricultural law is strongly recommended in these cases.

Written by Simon Jenkins, SRA 167489, Solicitor at Curtis Legal Limited (SRA 450129). For advice on inheritance tax and jointly owned assets in your estate, call freephone 0800 214 216 or request a same-day callback.