A High Value Jointly Owned Asset: Managing the IHT

IHT Planning

Two husband-and-wife couples had jointly purchased a commercial property decades ago for £500,000.

Following the death of one member, the remaining three owners faced the challenge of estate planning.

The property has increased in value substantially and is currently valued at £5 million.

All clients are in their 80s, and with such a significant asset, inheritance tax (IHT) was a major concern.

Minimising Exposure

The clients wanted to minimise IHT exposure while being mindful of capital gains tax (CGT), as the property had substantially appreciated in value.

Rental income from the property added another layer of complexity for tax-efficient planning.

A IHT Solution for the Jointly Owned Asset

We recommended placing £325,000 worth of the property value for each individual (totalling £650,000 for the couple) into trusts.

This removed the shares from their estates for IHT purposes without any immediate IHT to pay.

Provided they survive seven years after the transfer, this strategy results in substantial long-term IHT savings.

Rental income from the property is received by the trust (subject to 45% tax) but can be distributed to beneficiaries, such as children, who can use their £12,570 personal allowance to receive income tax-free or unused basic rate band to convert the income to be taxed at 20% (22% from 6 April 2026).

The trust can also “hold over” the gain on the asset, deferring any capital gains tax (CGT) liability for the transferor at this stage.

If the asset were gifted directly to an individual there would be substantial CGT payable in this scenario.

The Result

IHT Savings: £130,000 per individual, £260,000 per couple after seven years.

Long-Term Estate Planning: Assets in trust are excluded from IHT in the donor’s estate after seven years

Efficient Income Distribution: Beneficiaries can receive income from the trust tax-free where allowances permit

Capital Gains Efficiency: Gains on the asset can be held over to defer CGT

Key Takeaway

Highly appreciated assets can create complex IHT challenges.

Careful use of trusts can significantly reduce tax exposure while maintaining flexibility for income distribution.

In most cases it’s impossible to avoid tax completely, but substantial savings are achievable with the right planning.

Trusts are complex and have their own tax regime.

With good planning there is usually little if no IHT payable by the trust itself.

However we would always recommend you take professional legal and tax advice before embarking on a lifetime trust set up.

Getting in touch

Effective inheritance tax planning can make a significant difference to the value of the estate you pass on to your family.

With a range of strategies available, we can help you identify the best option for your circumstances.

To find out how our Inheritance Tax Planning Service could help you, call us on 01634 731390 or request a call back and we will contact you to discuss your options.