Tenants in Common vs Joint Tenants8 Feb 2023 | Jema Thaker
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Tenants in Common vs Joint Tenants: Which is best for buying a property together?
When buying a property with someone else, you can choose between two types of legal ownership – joint tenants and tenants in common. There are some important distinctions between the two. The right option will depend on your individual circumstances.
Joint tenancy is when two or more people own a property equally. It does not matter if one person paid 70% or even 100% of the deposit or mortgage payments. When you own as joint tenants, all the owners have equal rights to the whole property.
This means you must act together as a single entity when making decisions about the property. For example, you will have one mortgage and must agree if you wish to sell the home.
Tenants in Common
Tenancy in common is when two or more people own a property, but not necessarily in the same proportions. Each owner has a distinct share of the property, which can be equal or unequal percentages of ownership. For example, one person might own 70% while another owns 30%. When deciding how the ownership is divided, it is usual to base the percentage on how much each person contributed towards the purchase price.
Since the ownership is separate, each person can act independently when making decisions about the property. For example, they can sell or mortgage their own share without consulting the other owners. Each owner receives a percentage of the sale proceeds when the property is sold.
Joint Tenants With Right of Survivorship vs Tenants in Common
A major feature of joint tenancy ownership is that it comes with a right of survivorship. Should one of the owners die, their share in the property automatically transfers to the other joint tenants. One owner cannot leave their share of the property to anyone else in their will or through the intestacy rules.
While the right of survivorship makes sense to many couples, for those who want someone other than the co-owner to inherit their part of the property when they die, it is the factor that pushes them towards a tenancy in common. As tenants in common, there is no rule of survivorship. Each owner can specify who will inherit their share of the property through a will or other means.
Here’s an example. Imagine that Peter and Janice, who have both been married before, own their home as joint tenants. When Peter dies, Janice automatically gains full ownership of the property. Peter could not leave his share of the home to his children from a previous relationship.
When Janice dies a few years later, the property will form part of her estate. In her will, she decides to leave everything to her own children from a previous relationship, and Peter’s children receive nothing.
If Peter and Janice owned the home as tenants in common, they could have specified who would inherit their share of the property in their will. In this case, Peter’s children would have been able to inherit a share of the family home.
Joint Tenants or Tenants in Common for Unmarried Couples
Unmarried couples have no automatic right to inherit each other’s property when one of them passes away. However, owning a property as joint tenants gives the remaining partner full legal ownership and control, regardless of whether the deceased left a will. The property does not go through probate; it automatically transfers to the survivor.
This can be a great advantage when the surviving partner must remain in the property. Holding the property as tenants in common, on the other hand, means that part of the ownership may fall into the hands of the deceased’s family, making it difficult for the surviving partner to remain in the family home.
This is not the only consideration when choosing an ownership structure, however. A solicitor can help you choose the ownership that makes sense for you and your family.
Joint Tenants or Tenants in Common: Inheritance Tax Implications
The tax treatment depends on the couple’s relationship when an owner dies. If the ownership share goes to the deceased’s spouse or civil partner, no tax is due on that transfer, regardless of whether they are owned as joint tenants or tenants in common.
If the property is left to another beneficiary, differences arise:
Joint tenants: half the property’s value is added to the value of the deceased’s estate (assuming there are two owners). Inheritance tax (IHT) will then be payable if the estate’s value exceeds the IHT threshold.
Tenants in common: the value of the deceased’s share is added to the estate’s total value. IHT will be due when the estate ends above the tax-free allowance.
Joint Tenants or Tenants in Common: Other Taxes
The difference between joint and tenancy in common doesn’t usually carry any tax implications when you buy the property, assuming it is to be your home and not an investment property.
If the property is an investment property, the income is split 50:50 for joint tenants. For tenants in common who are married or civil partners, the split is also 50:50; however, the couple can elect for the income to be taxed in accordance with their actual ownership shares. For unmarried tenants in common, the split will always follow their ownership percentage.
The same principle applies to capital gains tax purposes – gains are split equally for those who own as joint tenants and in accordance with each owner’s share.
Which is Better: Joint Tenants or Tenants in Common?
Ultimately, it’s up to you and your partner to decide which ownership structure works best for you.
A joint tenancy may work best if you:
- Are you in a committed relationship
- Want to have equal rights to the property, regardless of your financial contribution
- Want the property to go straight to the other owner when you die
A tenancy in common may work best if you:
- Have unequal contributions towards the purchase price and want your own to reflect that
- Want to control who inherits your share of the property when you die
In both cases, you must seek legal advice from a solicitor before signing any documents or making decisions. This will ensure that you are fully aware of the legal implications of your decisions and can decide which ownership structure works best for you.
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