What Should I Do with the Family Home in My Will?
6 minute read
Understanding your options now can make all the difference to your family later.
For most people, the family home is their single most valuable asset. It may represent decades of mortgage payments, careful saving, and accumulated equity. It is also, in most cases, where much of the family’s wealth is concentrated. So the question of what should happen to it on your death is one that deserves careful and considered thought.
The answer depends significantly on how the property is owned. If you are the sole legal owner, you have a relatively straightforward range of choices. If the property is jointly owned with another person, which is the case for the majority of couples, there are additional legal considerations that will shape what your will can and cannot achieve.
This guide explains the key concepts and options so that you can approach the will-drafting process with a clear understanding of what decisions you will need to make.
Table of Contents
If You Are the Sole Owner
If the family home is registered in your name alone, you are the sole legal owner and the property forms part of your estate. This means that you will have full control over what happens to it when you die. You can leave it to your spouse or partner, to your children, to another relative or friend, or to a combination of people in whatever shares you choose. You can also direct that it be sold and the proceeds distributed, or that it be held in trust for a beneficiary during their lifetime.
The degree of choice available to a sole owner is relatively broad, limited primarily by the general rules around reasonable provision for dependants and any applicable tax considerations, both of which we will address below.
In practice, many properties that appear to be solely owned are in fact jointly owned or involve interests more complex than the title register suggests. It is always worth checking the legal title before assuming you have complete freedom of disposition.
Jointly Owned Property: Why It Requires More Thought
The majority of couples who own a family home together do so as joint owners. But joint ownership is not a single, uniform legal arrangement. It takes two distinct forms, and the difference between them has very significant implications for what your Will can do with your share of the property.
Joint Tenancy: The Right of Survivorship
The first and most common form of joint ownership is joint tenancy. Under a joint tenancy, both owners hold the property together as a single, unified whole. Neither owner has a separately identifiable share in the property. Instead, they each own the entire property together.
The defining legal feature of a joint tenancy is the right of survivorship. This means that when one joint tenant dies, the property does not pass through their estate. Instead, the surviving joint tenant automatically becomes the sole owner of the entire property by operation of law, irrespective of what the deceased’s will says.
To put it plainly: if you own your home as joint tenants and you leave your share to your children in your will, that gift will fail. The right of survivorship overrides the will, and your surviving co-owner inherits your share regardless.
For many couples in straightforward circumstances, this is not a problem. It is often exactly what they want. But it becomes a significant limitation if your wishes differ or if there are broader financial and tax-planning considerations to consider.
Your Will Cannot Override the Right of Survivorship. Many people do not realise that their will has no effect on a jointly owned property held as joint tenants
Tenancy in Common: Separate and Transferable Shares
The second form of joint ownership is the tenancy in common. Under a tenancy in common, each owner holds a distinct, separately identifiable share in the property. Those shares are often equal, but they can be unequal depending on how the ownership was originally set up. The critical difference from a joint tenancy is that there is no right of survivorship. When one tenant in common dies, their share does not pass automatically to the co-owner. It forms part of their estate and is dealt with under their will.
This gives each owner full testamentary freedom over their share of the property. If you hold your home as tenants in common, you can leave your share to your children, to a trust, or to whoever else you choose, independently of what your co-owner does with their share.
Severing a Joint Tenancy: When and Why It Matters
If you currently own your home as joint tenants but you want your share to pass to someone other than your co-owner, the first step is to sever the joint tenancy. Severance converts the ownership from a joint tenancy to a tenancy in common, giving each owner a distinct share that they can deal with freely in their will.
Severance is a formal legal process. It involves serving a written notice of severance on the other co-owner and, ideally, registering the change at HM Land Registry. Both steps need to be carried out correctly to be effective. If the severance is not done properly, or is not done at all, your will cannot achieve what you intend in relation to the property, no matter how clearly it is drafted.
Once the joint tenancy has been severed, you and your co-owner will each hold a distinct share, typically fifty per cent each, and each of you will be free to deal with that share independently under your respective wills.
Severance is a relatively straightforward legal step, but it should always be carried out in conjunction with the will-drafting process so that the property, the ownership structure, and the will provisions are properly aligned with your intentions.
Are you planning to leave your share of the family home to someone other than your co-owner? Severing the joint tenancy is an essential first step. We can guide you through the process
Protecting Against Care Fees: Why Severance and a Life Interest Can Help
One of the most significant financial concerns for homeowners in later life is the potential cost of residential care. In England, the rules on means-tested care funding require individuals to contribute to the cost of their care from their own assets, including property, until those assets are reduced to a relatively low threshold. The family home is often the largest single asset in the assessment, and many families have seen the bulk of their estate consumed by care fees as a result.
While there are limits to what can be achieved through will planning in this area, particularly if steps are taken too close to the time when care is needed, there are arrangements that can offer some degree of protection for at least part of the property’s value.
How a Life Interest Trust Can Help
If a couple severs the joint tenancy so that each holds a distinct share, and then each partner leaves their share not outright to the survivor, but into a life interest trust for the survivor’s benefit, the share that has been placed into trust may be treated differently for care funding purposes than a share that is simply left outright.
Under a life interest trust, the surviving partner has the right to live in the property and to receive any income it generates during their lifetime. But they do not own the capital outright. The underlying share of the property is held in trust, and on the survivor’s death, it passes to the children or other chosen beneficiaries.
Because the surviving partner does not own the trust assets outright, those assets are in a different legal position from assets they do own directly. Depending on the circumstances, this may offer some protection against the trust share being assessed as part of the survivor’s means for care funding purposes. However, it is important to note that this is not a guaranteed outcome, and the rules governing care fee assessments are complex and subject to change. Local authorities do have powers to investigate deliberate deprivation of assets, and arrangements made primarily to avoid care fees can be challenged.
What a properly structured life interest trust can do is ensure that the property is not simply gifted outright to a surviving spouse, who then accumulates it alongside their other assets, thereby fully exposing it to assessment. Used as part of a broader, sensibly structured will rather than as a last-minute device, it forms a reasonable and legitimate part of estate planning.
Concerned about care fees and the family home? We can explain your options clearly and help you make arrangements that are both legally sound and appropriate to your circumstances.
Inheritance Tax, the Family Home, and Why Structure Matters
For many estates, the family home is also the primary driver of inheritance tax liability. Understanding how the relevant tax allowances apply to property, and how the way your property is held and left in your will affects those allowances, can make a very significant difference to the amount of tax your estate pays.
The Nil Rate Band
Every individual in England and Wales has a nil-rate band for inheritance tax purposes, currently set at £325,000. Assets up to that value can be passed on free of inheritance tax. Assets above the threshold are taxed at 40%.
The Transferable Nil Rate Band
When a person leaves their entire estate to their spouse or civil partner, any unused portion of their nil rate band is not lost. Instead, it can be transferred to the surviving spouse and added to their own nil rate band when they die. This means that a married couple or civil partnership can effectively combine their nil rate bands, creating a potential total threshold of £650,000 before inheritance tax becomes payable.
However, this transferability applies only in specific circumstances, and its availability depends in part on how the estate was structured at the first death. If the first partner to die left everything outright to the survivor, their nil rate band will typically be fully transferable. But if a taxable gift was made on the first death, for example, to someone other than the spouse, the nil rate band available for transfer will be reduced accordingly.
The Residential Nil Rate Band
In addition to the standard nil rate band, there is an additional allowance specifically for the family home, known as the residence nil rate band. This is currently set at £175,000 per individual. It applies where a person leaves a qualifying residential property, or an interest in one, to their direct descendants, including children and grandchildren. Like the standard nil rate band, the residential nil rate band is also transferable between spouses.
This means that a married couple with a family home worth a significant sum can potentially benefit from a combined residential nil rate band of £350,000, on top of their combined standard nil rate bands of £650,000, giving a total potential threshold of £1,000,000 before inheritance tax applies.
However, the residential nil rate band tapers away for estates with a net value above £2,000,000, reducing by £1 for every £2 over that threshold, so it is not universally available.
How Severance and a Life Interest Trust Can Preserve Both Allowances
This is where the structure of your property ownership and your will provisions interact in a particularly important way.
If a couple owns their home as joint tenants and the first to die simply leaves everything to the survivor by right of survivorship, no interest in the property actually passes under the will at all. The survivor inherits by operation of law. The nil rate band of the first to die is unused in relation to the property, though it remains transferable. The residential nil rate band of the first to die may also be underused if no qualifying interest is actually passed to a direct descendant on the first death.
Now consider the alternative. The couple sever the joint tenancy so that each holds a 50% share as tenants in common. Each partner makes a will leaving their share of the property to a life-interest trust for the surviving spouse, with the remainder passing to the children on the survivor’s death.
On the first death, the deceased’s share of the property passes into the life interest trust. The surviving spouse has the right to live in the property and enjoy it during their lifetime, so their practical position is unchanged. But the structure of the arrangement means that on the second death, when the trust comes to an end, and the property passes to the children, the estate of the first to die may be treated as having made a qualifying gift of a residential property interest to direct descendants. This can allow the residential nil rate band of the first to die to be preserved and used, in addition to the survivor’s own residential nil rate band.
A married couple owns a home worth £1,000,000 equally as tenants in common. Each has a nil rate band of £325,000 and a residential nil rate band of £175,000. If structured correctly, the combined allowances on the second death could amount to £1,000,000, potentially resulting in no inheritance tax on the property at all.
Note this is a simplified illustration and depends on individual circumstances.
The interaction between the joint tenancy, the life interest trust, the transferable nil rate band, and the residential nil rate band is genuinely complex. The rules are detailed, the thresholds are subject to change, and the specific outcome for any individual estate will depend on a range of factors, including the total value of the estate, the nature of the assets, and the exact structure of the will provisions. This is therefore an area where professional will-drafting advice is not simply helpful but essential.
Could your family home be structured to reduce or eliminate inheritance tax? The answer depends on how it is owned and how your will is drafted. We can help you find out.
Putting It All Together
The family home sits at the intersection of several important areas of law and financial planning: how property is legally held, what a will can and cannot do with jointly owned assets, the long-term risk of care fees, and the inheritance tax implications of how property is structured and passed on.
Getting this right requires more than filling in a will template. It requires a clear understanding of how the property is currently owned, what your intentions are for the people who matter most to you, and which legal structures will best give effect to those intentions while managing the financial risks along the way.
A sole owner has straightforward choices, but still benefits from professional guidance on trust structures and tax planning. A joint owner needs to carefully consider whether their current ownership structure allows their will to achieve their intentions, and whether severing the joint tenancy and establishing a life interest trust would better serve their circumstances.
Neither decision should be made in isolation from the other provisions of your will, or from a broader understanding of your estate as a whole.
We Are Here to Help
Decisions about the family home are among the most consequential you will make in your Will. They affect not just who inherits the property, but the financial security of your surviving partner, the inheritance your children ultimately receive, and the amount of tax your estate may have to pay.
Our team has the expertise to guide you through these decisions clearly and carefully, taking account of your full circumstances before any drafting begins. We will explain your options in plain terms, help you understand the implications of each, and produce a will that is properly structured to achieve your goals.
If you would like to discuss your circumstances, please do get in touch. You can use our online contact form or call us directly.
Frequently Asked Questions
Can I leave the family home to my children in my will if I own it jointly with my spouse?
It depends on how you own the property. If you own it as joint tenants, the right of survivorship means your share passes automatically to your spouse on your death, and your will has no effect on it. If you own it as tenants in common, you each have a distinct share that can be dealt with under your respective wills. If you want to leave your share to your children rather than your spouse, you will need to sever the joint tenancy first.
What does it mean to sever a joint tenancy?
Severing a joint tenancy is a legal process that converts joint ownership from a joint tenancy to a tenancy in common. It involves serving a formal notice of severance on the other co-owner and registering the change at HM Land Registry. Once completed, each owner holds a distinct share that they can leave in their will to whoever they choose.
Can the family home be protected from care fees?
There are arrangements, including life interest trusts, that may offer some protection for a share of the property against means-tested care fee assessments. However, this is a complex area and any planning must be done carefully and in good faith. Arrangements made primarily to avoid care fees can be challenged by local authorities. Professional advice is essential.
What is the residential nil rate band and how does it apply to my home?
The residential nil rate band is an additional inheritance tax allowance of up to £175,000 per individual, available where a qualifying residential property interest is left to direct descendants such as children or grandchildren. It is transferable between spouses, potentially creating a combined allowance of £350,000 for a couple. Combined with the standard nil rate bands, a married couple may be able to pass on up to £1,000,000 free of inheritance tax if their estate is structured correctly.
What is a life interest trust and how does it work in the context of a property?
A life interest trust is a legal arrangement under which a beneficiary, typically a surviving spouse, is given the right to live in the property and receive any income it generates during their lifetime. They do not own the property outright. On their death, the underlying property passes to whoever has been named as the remainder beneficiaries, typically the children. This structure can be used for care fee protection, inheritance tax planning, and to balance the competing interests of a surviving partner and children.
Does how I own my property affect inheritance tax?
Yes, potentially significantly. The way your property is held and the way it is structured in your will can affect whether the residential nil rate band applies on each death, whether nil rate bands are transferred efficiently, and how the estate is valued for tax purposes. Getting professional advice on this before drafting your will is strongly recommended.
Disclaimer
This article is intended as general information only and does not constitute legal advice. The information refers to the law of England and Wales. Tax thresholds and legal rules are correct at the time of writing but are subject to change. We recommend that you seek professional advice regarding your own circumstances.
Bio
This article was written by Stephen Rhodes. Stephen was called to the Bar of England and Wales in 1999 and brings over 25 years of in-house experience working with solicitor firms across the Manchester area, with a specialism in Wills and Probate. He now focuses exclusively on will drafting, helping his clients ensure their loved ones are taken care of exactly as they would wish.