Our house is in my husband's name only: What does this mean for inheritance tax?

Our house is in my husband's name. He bought it before we were married 33 years ago and we have never got around to adding my name.

When one of us dies, would my husband and I still be able to inherit each other's residence nil-rate bands of £175,000 each for inheritance tax purposes?

What do I need to do to make sure that I do benefit from this? W.B, via email

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Harvey Dorset, of This is Money, replies: It is easy to overlook future tax decisions earlier on in life.

Back in the mists of 1992, when you might have been heading to the cinema to watch Aladdin, or supporting your favourite football club in the first Premier League season, a future inheritance tax liability was unlikely to be at the top of either of your minds.

But time moves fast. In the blink of an eye it is 2025, and as you say, your name still isn't on the house.

Inheritance tax of 40 per cent is usually charged on a deceased person's assets worth over and above £325,000. This is known as the nil rate band.

People are allowed to leave a further £175,000 worth of assets without them becoming liable for inheritance tax, if their home forms part of their estate and they leave it to direct descendants.

This is the residence nil-rate band, and both this and the standard nil rate band can be transferred to a remaining spouse on death if they are unused by gifts to others. The two combined create a total allowance of £1million for a married couple.

If your husband dies before you, then you will receive his residence nil rate band via spousal transfer.

However, if you were to die first, your husband would not receive your RNRB as you are not a joint owner.

This is Money spoke to two financial advisers to find out what you need to do to make sure your home is safe from the taxman.

Chris Peters, independent financial adviser at Flying Colours, replies: If your husband pre-deceases you, then you should receive the property without any inheritance tax (IHT) liability.

You will be entitled to spousal exemption regardless of being a joint owner or not.

Once you took ownership of the property, you would also have your own residence nil rate band (RNRB) of £175,000, as well as inheriting the same RNRB from your husband, making a total of £350,000 that could be passed down directly to children or grandchildren on your death.

It is worth noting that RNRB is only applicable if direct descendants - children or grandchildren - will inherit the property.

However, if you pass away before your husband, then you would not be able to pass on any RNRB to him if your name is not on the deed and you are not a joint owner.

To ensure that you're both recognised as owners for IHT purposes, you may want to add your name to the property deeds. This can help clarify ownership and ensure you both benefit from any potential IHT reliefs.

Another consideration is whether you should become a joint owner and have your name added to the property deeds.

This is because if both you and your husband were to pass away at the same time, then the estate would pass directly to your beneficiaries.

If these were direct descendants, then only your husband's RNRB would be available.

However, if you were to change the deed so that you became a joint owner, then the amount available to pass down would be £350,000 – a RNRB of £175,000 each, on the proviso that your total estate does not exceed £2 million.

If it were to exceed £2 million the RNRB would be reduced on a tapered basis by £1 for every £2 that the net value of the estate exceeds £2 million.

When owning a property jointly, there are two ownership structures available.

Joint tenants: If you are joint tenants, the property automatically passes to you upon your husband's death.

Tenants in common: If the property is owned as tenants in common, your husband's share will pass according to his will. If you inherit his share, you need to go through probate.

You should also update your will to reflect your wishes. Make sure that your husband's will clearly states that the property is to pass to you upon his death and consider specifying that it will eventually go to your children or grandchildren.

This can help you fully benefit from the RNRB in the future. If your husband's will leaves the property to you, you can inherit it, but it will require the probate process to transfer ownership. This can be avoided if you are joint owner.

To avoid complications, it's advisable to be added to the property deeds while your husband is alive. This simplifies inheritance and ensures you have legal rights. I recommend that you consult a solicitor for advice on the best approach.

Samantha Gibson, senior financial planner at Canaccord Wealth, replies: Whether your husband would inherit your nil-rate band would depend on a number of factors.

The Inheritance Act 1984 stipulates that every UK resident has an inheritance tax nil rate band allowance of £325,000 each and this has not increased since 2009.

In April 2017 an additional allowance was introduced called the residence nil rate band. This allowance is for homeowners where the value of the property can be passed to beneficiaries without this being subject to IHT.

The requirements of this stipulate that the property needs to be your main residence, which will pass to 'direct descendants,' which includes a spouse or civil partner, children and stepchildren.

So based on this, in short, the answer to the reader's question is 'yes', the husband can inherit your residence nil-rate band, providing you are married at the time and your husband dies before you.

This is an important consideration in estate planning and what it means for the nil rate band. If the reader is worried about the house only being in her husband's name, they might want to consider transferring the property into both names. This could be done in one of two ways.

'Joint tenants' is when people own the property together – when one person dies, their share automatically passes to the other – this is called the 'right of survivorship' and it doesn't go through the will or estate.

There is usually no IHT at this point if they're married or are civil partners. But the first person's share doesn't use their nil rate band (because it doesn't go into their estate).

'Tenants in common' – this is when each person owns a specific share (often 50/50). When one dies, their share doesn't automatically pass to the other person – instead it goes to their estate and is distributed according to their will.

They can leave their share to someone else (e.g. children) and it uses up their nil rate band potentially reducing future IHT.

Regardless of what is done regarding house ownership, it is always advisable to have an updated will that details specific intentions after death.

So, in this reader's situation, the will can specify that the home is left to her on death and not to someone who is not considered a direct descendant as this tax nil rate allowance will then not apply.

As a spouse, any assets transferred under a will are exempt from IHT regardless of their value.

There are occasions where the residence nil-rate band of £175,000 may not apply:

• If the property is under the value of £175,000 (£350,000 if joint allowance applies) then only 100 per cent of the value of the home will be eligible. For example, if the family home was valued at £150,000, the maximum RNRB will be £150,000.

• Downsizing: in the event the property has been sold to 'downsize' or move into rented accommodation, the RNRB could potentially still be claimed for the original property value up to £175,000 each - providing this downsizing occurred after 8 July 2015. However, the executors of the estate would need to complete a form via HMRC to claim for this (IHT400).

• Trust: if the reader's husband was to leave the property in trust in the event of death, there is a likelihood this allowance could also be lost as a trust is not considered a direct descendant. In this instance, he may forfeit this allowance unnecessarily.

So to sum up, the reader shouldn't unduly worry – as the spouse, the house would automatically be passed to her and she should benefit from the inheritance tax nil rate band allowance.

However, it is always advisable to speak to a financial adviser who can look at all the variables and suggest the smartest way forward.