Tenants in Common vs Joint Tenants

Tenants in Common vs Joint Tenants: Which is best for buying a property together?

When it comes to buying a property with someone else, you have a choice 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 Tenants

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 that you must act together as a single entity when making decisions about the property. For example, you will have one mortgage between you and you must be in agreement 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 and this share 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. When the property is sold, each owner receives a percentage of the sale proceeds.

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 in their will who would inherit their share of the property. 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 over the property, 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 in cases where the surviving partner needs to 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

When an owner dies, the tax treatment depends on the couple’s relationship with each other. 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 value of the property is added to the value of the deceased’s estate (assuming there are two owners). Inheritance tax (IHT) would then be payable if the value of the estate exceeds the IHT threshold.

Tenants in common: the value of the deceased’s share is added to the total value of the estate. Where the estate ends up being above the tax-free allowance, then IHT will be due.

Joint Tenants or Tenants in Common: Other Taxes 

The difference between joint tenancy 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, it’s important that you 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 make an informed decision about which ownership structure works best for you.