There are two different ways of owing a property jointly: as joint tenants or as tenants in common.
If you own a property as joint tenants, the co-owners own the whole property together and neither owner has a specific share.
When the property is sold the sale proceeds are split equally between the co-owners. It doesn’t matter how much you contributed to the purchase price or the mortgage repayments.
Upon your death the property will automatically pass to the surviving co-owner, regardless of what is written in your Will (or under Intestacy Rules if there is no Will). This is known as the ‘right of survivorship’. Although this can often be beneficial, it could also mean there is more Inheritance Tax to pay and there is a possibility that your share of the property may not ultimately be inherited by your children.
Couples who want to leave their property to each other will often own a property in this way. If, however, there are children from a previous relationship, there is no guarantee that your children will inherit what you may consider to be your share of the property. The surviving co-owner could prepare a new Will leaving the property to a new partner (a ‘sideways inheritance’) or just to their own children or they may not make a Will and this might happen by default.
Tenants in common
If you own a property as tenants in common, the co-owners own a specific share which is typically 50% but could be unequal shares. The percentage might be based on how much each owner contributed to the purchase price or will pay towards the mortgage repayments and often this is set out in a Declaration of Trust signed by all the co-owners.
When you die your share in that property will pass in accordance with the terms of your Will or Intestacy Rules. Owning a property as tenants in common provides more flexibility when deciding what should happen to your interest in a property and enables you to leave your share of the property to someone other than the surviving owner. Similarly, if you wish for your interest in a jointly owned property to be held on trust on your death, you will need to own the property as tenants in common.
Owning a property as tenants in common is, therefore, ideal for someone who would like to leave their share of the property to someone other than the co-owner when they die. It means that a parent can ensure that they leave their share of the property to their children, in particular if they are children from a previous relationship. It is possible to do this and also allow the co-owner to live in the property for as long as they like by including a trust in your Will.
Should you require full time care in the future, how you own your home could also affect the level of funding you’re able to get for care home fees. If you own a property as tenants in common you will only be means tested on your share of the property. Whereas owning a property as joint tenants could push you above the threshold for any means tested benefits you would otherwise be eligible for.
It is possible to change from joint tenants to tenants in common by ‘severing the joint tenancy’. This is a fairly straightforward thing to do and involves an application to the Land Registry.
If you would like to discuss how you own your home, please don’t hesitate to get in touch. We would be more than happy to talk through the different options available to you and what is best for you in your circumstances.
When choosing to buy a property with someone else, it’s important to consider what would happen to your share if you were to pass away. The way in which you choose to purchase the property makes a huge difference to how your share assets are divided, the question is should you choose Joint Tenants or Tenants in Commons? Get in touch with our Private Client team for more guidance on 0330 912 8338.