If you’re buying or have inherited a property with another person, or you have become a trustee, you need to consider whether you’d like to own the property in a joint tenancy or as tenants in common. We’ve included some considerations to take into account below.
Owning a property in a joint tenancy is a popular choice for couples because they have an equal share of the property and, if one of them dies, the whole of the property automatically transfers to the survivor.
This is important to bear in mind if you do not want the surviving owner to benefit from all your interest in the property. If you would like someone else (such as a child from an earlier relationship) to benefit from your interest in the property in addition to or instead of the surviving owner, then you should instead consider owning the property as tenants in common and Making or Updating Your Will to make sure this properly reflects your wishes.
Tenants in Common – Separate Interests
Owning a property as tenants in common allows owners to have separate shares, split however they choose (this is usually in equal shares of 50:50, but any size split is possible).
This arrangement is popular with investors, business partners or siblings, for example, so they can choose who would benefit from their property interests upon their death. If inheritance tax is an issue, there can also be tax advantages to owning the property in this way. Our private client solicitors are able to undertake complex inheritance tax planning to advise you on the best options for your circumstances.
Another point to consider is that having the property interests individually considered means owners (who might not have joint bank accounts, for example) can more readily reflect their share based on their contributions. For example, one party may have contributed a higher figure towards the purchase price, or one party may contribute more to the mortgage repayments or home improvements, and so the share percentages can reflect that.
Questions to Consider
Some questions to ask before entering into this arrangement and deciding how you’ll split the property interests:
- How much are the parties contributing towards the initial purchase?
- Who is paying the deposit, and in what shares?
- Who will pay the mortgage and outgoings?
- Are you planning any improvements to the property? If so, who will be paying for these?
- What do you want to happen when the property is sold?
- What happens if the owners’ relationship breaks down?
What to Do for Complex Arrangements
Sometimes the arrangements can get quite complicated and in these cases a Declaration of Trust is recommended. This deed sets out in detail what you have agreed and should reduce the risk of a dispute in the future. If we are asked to prepare such a document, we would make a separate charge as this is not part of the standard conveyancing process. The charge varies depending on the individual case, but we will agree a fixed price with you in advance.
Once your shares have been recorded, you cannot change those shares unless all of the other owners agree. So make sure you’re certain before finalising your agreement.
If a Gift or Loan is Being Given
If anyone is contributing money towards to purchase of a property, but are not going to have a legal share in the property, they should seek independent legal advice before proceeding. A typical example is a parent helping a child to buy his or her first house. In these cases, we can only act for and advise one party due to the possible conflict of interest.
If a gift or loan is being given, the following considerations should be taken into account:
- Is the money a loan or a gift?
- What happens if the other party wants their money back?
- If a loan, will interest be payable?
- If a loan, what happens if the property is sold and the money is not repaid?
- If a loan, does it need to be secured against the property? If so, will this complicate the mortgage arrangements?
Weighing up your options
If you’re buying jointly and one person is making a financial contribution that is more than the other person, it is important to give careful consideration to how the property will be held between you upon completion.
If you decide to hold the property as joint tenants (in equal shares) or tenants in common (in either equal or unequal shares), but one of you is contributing more by way of deposit or cash payment towards the purchase price (which is more than the percentage share you will ultimately own upon completion), then you should be aware that you will effectively make a gift to your co-purchaser(s) as soon as the money arrives into our client account (which will be in your joint names).
For example, if you were buying a property for £100,000 and chose to hold the property between you on a 50:50 basis, but one of you had contributed in the sum of £60,000 (from a bank account in a sole name), then the other co-purchaser would effectively receive a gift of £10,000 (£60,000 minus £50,000). Whilst this entirely normal/intended in most transactions (particularly with married couples), it is important that we highlight the legal and practical implications of this arrangement. Clients may prefer to take independent legal or financial advice if they have any concerns before committing to this arrangement and making any payments.
As experienced property solicitors, our team would be happy to run through your options with you and ensure you fully understand what you’re agreeing to.