When multiple purchasers (up to four) purchase a property in the UK, this is known as joint ownership. As a joint owner, you all have equal rights; however, the equity can differ from purchaser to purchaser.
If you are joint tenants, each party will own an equal share of the property – this is particularly common within marriages and civil partnerships.
There are many factors to consider when deciding on the type of joint ownership you wish to have which is why we have broken down the benefits and disadvantages of this type of ownership.
Benefits of Joint Tenant Ownership
Depending on your situation, there are benefits and disadvantages to owning a property as joint tenants.
Lower Legal Fees
Legal fees tend to be lower when entering a joint tenancy arrangement as the solicitor is not required to produce a deed of trust. Depending on the complexity of drafting the deed, costs can vary up to several hundred pounds.
Ideal for Married Couples
If you are married, you will most likely enter into a joint tenancy agreement. This means both parties own a 100% stake in the property and can avoid going through probate when one party passes away.
Right of Survivorship
If your partner was to die whilst you were in a joint tenancy, you can claim the 'right of survivorship'. This means the property is automatically passed to you, the other joint tenant on the agreement, because all owners own 100% of the property rather than a distinctive share.
In the event of a death, the surviving party is much more secure in their home than if they were a tenant in common.
By entering a joint tenancy as joint ownership, you accept shared responsibility for the property you are purchasing. This means that both parties must agree to any changes to the property, any funds taken out on the property and be equally responsible for any decisions made.
Disadvantages of Joint Tenant Ownership
Whilst there are several benefits to a joint tenancy arrangement, there are also some disadvantages to consider.
Debts and Forced Sale
If one party of the joint tenancy owes creditors money or ends up in bankruptcy, the creditors can force the sale of the property to recover the funds. Even though the other party may be completely debt-free, they can still lose their property in this instance.
Unfair Split in Divorce
If a marriage ends in divorce and their home is under a joint tenancy arrangement, both parties will end up with a 50/50 split of the property. Whilst this may be considered an advantage in some instances, if one party has financially contributed to the property more throughout the marriage, they will only be entitled to half the value when sold.
Right to Sell
In a joint tenancy, you are only entitled to sell half of the property if the other party is in complete agreement and fully cooperates with your decision. This can become an issue during the breakdown of a relationship if it has ended on bad terms and one party is refusing to sell.
Due to the Right to Survivorship, the surviving party in the agreement will inherit the whole property when the other dies. This can be an issue when blended families are involved.
Suppose both parties have children outside of the marriage when the surviving party inherits the property. In that case, only their children are legally entitled to the inheritance, not the deceased's children, unless expressly stated within the will.
Tenants in Common
In this agreement, multiple parties can purchase and own different property shares. This is typically used for property purchases between unmarried couples, friends, siblings and investors.
If you are considering this type of joint ownership, you will want to read our list of benefits and disadvantages so you can be sure you are making an informed decision. With a tenancy in common, it can give you more freedom if your circumstances were to change, so it is well worth understanding how this can impact you financially.
Benefits of Tenants in Common
There are several benefits to owning a property as a tenant in common.
Individual Share is Protected
In a joint tenancy, both parties own 100% of the property. With a tenancy in common, you own an individual share and have complete control of what you choose to do with that share. In a relationship breakdown, it is much easier to go your separate ways if one party does not want to sell, as you can sell your share without the other party's approval.
Inheritance is Your Decision
When you are a tenant in common, you fully control who inherits your property when you die. This is well suited for people with children from other marriages who want to protect their future. You are required to have a will in place in this instance.
Whereas in a joint tenancy, you are taxed equally on your ownership, as a tenant in common, you will only be taxed based on your share of the property.
If both parties sit within different income tax brackets, having the lower-rate taxpayer own the majority share of the property can be more beneficial. This is particularly beneficial for Buy-to-Let investors as you will pay less tax on the rental income.
Disadvantages of Tenants in Common
Despite the benefits, read on for tenants in common problems when buying a property.
Deed of Trust
As a tenant in common in the UK, you should have a Deed of Trust in place when entering the arrangement as a layer of protection. This declaration is for all parties who own the property and expresses their share and interests in the property. It can also be used when an outside party has provided financial assistance towards the purchase and wants their contribution to be recorded. A Deed of Trust comes with an associated cost, which is a disadvantage.
Cost of Probate
If any party in the agreement dies and there is no will, their share of the property will be required to go through probate, which is both costly and timely. The share of the property owned by the deceased does not automatically go to the other tenant in common, as their share is a part of their estate. This means someone will need to apply for the legal right to this asset.
Right to Sell
If you are tenants in common and one wants to sell their share of the property, other parties that own a portion may have to either buy out the share or be forced to consider selling the property. This is particularly an issue if the party wishing to sell owns a majority share whilst you hold a minority share as you may be unable to afford to buy out.
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Joint Tenants or Tenants in Common, which is best?
Whilst both types of ownership are extremely common, you must ensure you enter into the most appropriate type for your circumstances.
Selling Shares of a Property
When it comes to the breakdown of a relationship when property ownership is involved, selling the property can be complicated. If you are joint tenants, both parties must agree to sell. However, if you are tenants in common, each party can choose what they do with their share without approval from the other party.
Whilst tenants in common are separate owners with individual share percentages; all parties are still responsible for the mortgage on the property. In a joint tenancy, if one party was to pass away, the mortgage liability is automatically passed onto the surviving party.
You will usually be required to take out a joint mortgage when entering into a joint ownership purchase agreement; most lenders would be hesitant to loan separately to individuals in the agreement.
If you want to purchase a property with someone, you should consult an independent mortgage advisor before progressing with any plans. They will be able to best advise you based on your circumstances to ensure you make the choice that is best for you.
Our recommended mortgage broker, Visionary Finance, works fee-free and will provide impartial and reliable advice. Get in touch with Visionary Finance today.
Who is best suited to joint tenancy?
Now we know all about joint tenancy and the advantages and disadvantages, it is time to work out who would be best suited to this type of joint ownership.
• Married couples
• Civil parnerships
• Unmarried couples in long-term relationships
Who is best suited to tenants in common?
Knowing what we know about tenants in common and what is involved in this type of arrangement, we can make a fair assumption of who would be most suited to being a tenant in common.
• Couples with children from other relationships
• Business associates
• Siblings or relatives
Can you change from joint tenants to tenants in common?
You can change from being joint tenants to being tenants in common in a process called ‘severance of joint tenancy’. This change can be made without the other party's agreement in the situation where there is a dispute over the change in joint ownership.
If both parties agree, a certified or original copy of the 'notice of severance' must be signed by both owners. If both parties do not agree, you would need to provide a letter clarifying your efforts to serve the notice of severance.
More information can be found on the government website.
What does the right of survivorship mean?
When one party of the joint tenancy passes away, the other party can claim the right of survivorship. In short, this means that due to the type of ownership, both parties own the whole property so upon death, the other person is entitled to it.
Do joint tenants have to live together?
Joint tenants have the equal right to reside in the property, and you cannot force the other party to leave the property. However, joint tenants do not have to live together, it is not compulsory, and everyone is entitled to their own circumstances. It is essential to know that in the event of a relationship breakdown, both parties have the same rights to live at the property, and locks cannot be changed.
Will joint ownership help to avoid probate?
Typically, probate is not required when a joint tenancy agreement party dies. The surviving owner will automatically be passed the ownership, thus preventing probate. However, if the surviving owner dies shortly after, probate may be required to resolve potential disputes over ownership at the time of death.
Do tenants in common avoid paying inheritance tax?
If the value of the deceased's estate exceeds the inheritance tax threshold, you may be liable to pay it. The current threshold is £325,000, with the tax being 40%. If the deceased left you a share of their estate in their will, the tax should be paid out of the estate. However, if there is not enough money to pay the inheritance tax, you may be required to sell the property or shares you were left to cover the cost.