Buying property together is an exciting step, whether you're doing it with a partner, friend, or business associate. However, it’s important to address some legal details early to avoid complications later.
When purchasing a property, you’ll have two options in terms of legal ownership - Joint Tenants or Tenants in Common. The two are quite different and your decision will affect how you manage and inherit the property in the future.
What Are the Differences Between Joint Tenancy and Tenancy in Common?
Understanding the differences and similarities between Joint Tenancy and Tenants in Common is incredibly important when making your decision.
Joint Tenants
Joint Tenancy is when two or more people own a property equally, regardless of how much each person pays towards the mortgage payments or the initial deposit.
Legally, in a Joint Tenancy, you own the property together as a single joint interest (rather than distinct shares).
With a Joint Tenancy, when one Joint Purchaser dies, their share in that jointly owned property passes to the surviving owners automatically. However, this may not be the best option for Joint Purchasers to choose where they want to protect their individual share in the property for children from a previous relationship, where their assets exceed the Inheritance Tax threshold, where unequal contributions are being made to the property or where nursing home fees are a potential concern.
Tenants in Common
Tenancy in Common allows two or more people to own property together, giving each person the opportunity to own different shares. This means three people might own the property, but have split their shares 50%, 30% and 20%.
With Tenants in Common, each owner can manage their share independently, often making decisions about the property more complex. For example, one owner can sell their share without needing the consent of the others. However, all owners must agree to sell the entire property.
If there is a dispute as to whether or not the property should be sold, lawyers and litigation are likely to be needed.
This arrangement is often preferred by business partners, friends, or relatives who want flexibility in managing their shares.
Joint Tenants vs. Tenants in Common: Survivorship
Survivorship in Joint Tenancy
With a Joint Tenancy, due to the right of survivorship, the deceased’s share will automatically transfer to the surviving owner(s) when they pass away. This ensures the property remains with the existing Joint Tenants, bypassing the probate process.
What Happens When One of the Tenants in Common Dies UK?
When a tenant in common passes away, their share of the property will be inherited according to their Will (or, if there's no Will, through The Rules of Intestacy).
This means a new co-owner can potentially be introduced to the property’s ownership if they choose for a family member, child or friend to inherit their share.
Tenants in Common vs Joint Tenants: Which Should You Choose?
Choosing between a Joint Tenancy and Tenancy in Common depends on your situation, relationship with co-owners, and future plans. Here are some things to consider:
Tenants in Common vs Joint Tenants for Unmarried Couples
For unmarried couples, or those cohabiting, how you own property together can significantly impact what happens if one partner passes away.
In the UK, unmarried couples have no rights to their partner’s assets when they pass away. However, choosing to be Joint Tenants means that if one partner dies, the other will automatically inherit the entire property without relying on a Will - bypassing probate.
On the other hand, if you choose to be Tenants in Common, each partner owns a specific share of the property. If one partner dies, their share can be passed to their heirs according to their Will. This could complicate things for the surviving partner if the other didn’t leave a Will, and it also means they could end up sharing ownership with the deceased partner's family members.
Discussing your situation with a specialist conveyancing solicitor can help you understand the implications and choose which option is best for you.
Tenants in Common vs. Joint Tenants: Tax Implications
Understanding the tax implications of Joint Tenancy and Tenancy in Common is crucial when deciding which option is best for you.
Tenancy in Common
Each owner’s share can be left to heirs in a will, and this share might be subject to inheritance tax if it exceeds the exemption threshold. The value of the deceased’s share is added to their estate, and inheritance tax will be due if the estate’s value exceeds the tax-free allowance.
While GloverPriest can advise on the legal aspects of joint tenancies and tenancies in common, it's best to consult a tax advisor to fully understand your tax liabilities.
Joint Tenancy
If one tenant dies, their share automatically goes to the surviving tenant(s) and is usually exempt from Inheritance Tax if it goes to a spouse or civil partner. However, if the share passes to another beneficiary, half the property's value is added to the deceased's estate for inheritance tax purposes.
How Much Does It Cost to Change from Joint Tenants to Tenants in Common?
Switching from Joint Tenants to Tenants in Common, known as "severance," comes with some costs. These usually include legal fees for preparing and processing the necessary documents. You'll likely need a solicitor to handle the paperwork to ensure everything is done correctly.
Additionally, there might be Land Registry fees to update the property title. The total cost can vary depending on the complexity of the property and the solicitor's fees. Speaking with a conveyancing solicitor will give you a clearer idea of the exact costs involved and ensure the process goes smoothly.
How Can GloverPriest Help?
At GloverPriest, our experienced Conveyancing Solicitors are here to guide you through the property ownership process, whether you're choosing Joint Tenancy or Tenancy in Common. We provide clear, personalised advice to make sure you make informed decisions and protect your investment.
If you need assistance from one of our specialist property lawyers, we're here to support you. Contact us today by choosing one of the options below: