You stated (in Nov 2017) re joint accounts and inheritance tax that, when one of the joint account holders dies, the value of the inheritance to the other signatory(ies) is determined by the amount contributed to the account by the deceased, and that it must be determined how much was put into the account by each party.
My question: Does this also apply in the case of a joint tenancy – ie must it be determined how much each party contributed to the purchase of the property before assessing the value of the inheritance and tax liability to the other joint tenant?
Ms M.K., email
Ironically, in the piece to which you refer, I started by saying that the joint tenancy and tenancy in common were two concepts that sound fairly complex but which are, in essence, quite straightforward. Then, having correctly outlined the difference between the two concepts, I proceeded to give entirely erroneous advice on the issue of inheritance tax liability, which is less than helpful.
So let me clarify. I should say at the start that, for most people, this is relevant only when someone dies, but that does not have to be the case. People can sell or otherwise transfer assets that are held jointly. This is increasingly an issue with home purchase, where costs mean that people club together to buy a home.
If the owners determine that they are holding the asset as joint tenants – as you outline in your query – Revenue considers that each owner of the asset holds an equal share in it, regardless of how much each owner contributed to the purchase of the asset, or even if they contributed nothing at all.
This is why it is important to have clarity about the ownership status of an asset.
It is possible, but unusual, for joint tenants to allocate different shares in an asset among the owners – but Revenue notes that this must be agreed in writing by all of the joint tenants. In the absence of any such written evidence, Revenue will assume that each surviving, or selling owner holds an equal share in the asset.
When one owner of an asset held via joint tenancy dies, their share passes automatically to the other owner or owners, without becoming part of the dead person’s estate.
That, of course, only means the issue of ownership is addressed; inheritance tax would still be due on the market rate of any share reallocated to other owners upon death.
Similarly, if transferred or sold during the lifetime of the owners, each would bear a potential capital gains tax liability – the increase in the asset value over the period of ownership before transfer within the group or outside it.
It should be noted, obviously, that a property held by a married couple or civil partners can pass between them on death without any tax liability.
Tenants in common is very different. Each tenant in common retains absolute ownership of a share in the property, or other asset. That share is determined by how much they contributed to its purchase of the asset – or to the bank account if relevant.
The big difference, as far as inheritance is concerned, is that the dead person’s share of the asset does form part of the estate and is allocated in accordance with their will by the executor or personal representative. If no will is made, it will be apportioned according to the rules of intestacy.
But what about tax? As with joint tenants, the beneficiary is taxed on the value of the share they receive. The main difference is that there is no presumption that the asset is divided equally with other owners – or even whether those other owners receive any of it.
Specifically related to bank accounts, an account held by tenants in common will have to be considered according to how much was contributed to it by each of the account holders.
For other assets, the Revenue will want evidence of how much each owner contributed to the purchase price.
So, to be crystal clear, if the property is held as joint tenants, the presumption is that each owner holds an equal share (unless agreed otherwise in writing).
Revenue will assume equal ownership and expect that to be reflected in the capital acquisition tax form (IT38) filed with it. You do not need to determine how much each party contributed to the purchase of the property.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
