Jointly owning property means there is something extra to consider – what type of co-ownership is best for you. Below we explain titles, tenancies and give co-owners tips on what to consider when purchasing property.
Whether you are married, civil partners, co-habitees, siblings or friends purchasing property jointly, you are all “co-owners”. While the “legal title” of the property is held by co-owners as “one” with no identifiable shares, the “equitable title” (beneficial interest) is divisible between co-owners and can be held under two types of tenancies.
Joint tenancy means the equitable interest in a property is owned in a similar way to the legal title; with no quantifiable shares of the equity identified between the co-owners. Upon a sale (or separation/divorce) it is presumed that joint tenants own the property equally, regardless of contributions towards the purchase price or mortgage repayments. When a joint tenant dies, their interest in the property automatically passes to the surviving joint tenant who becomes the sole owner – this is the “right of survivorship”.
Joint tenancies are common between spouses and civil partners who, via this tenancy, can ensure they automatically inherit each others’ share in the property. Co-owners who evenly contribute towards the purchase price or mortgage repayments often choose to become joint tenants. Joint tenancy may not be for you if you wish to reflect unequal contributions towards the purchase price or if you have family from a previous relationship who you wish to inherit your share of the property.
Joint tenants can sever the joint tenancy at any time – the effect is that the joint tenancy is terminated and a tenancy in common arises. If this happens you should consider whether you need to make (or update) your will.
Tenancy in common means co-owners can hold identifiable shares (equal or unequal) of the equitable interest in a property – the shares could reflect contributions to the purchase price, mortgage repayments or aid succession planning and can be declared between co-owners in a declaration of trust. The right of survivorship does not apply however, and upon a co-owner’s death their share in the property will pass to their successor(s) according to their will (or the rules of intestacy). It is therefore very important for tenants in common to prepare wills to ensure that their interest in the property passes to those they wish to inherit it.
Tenants in common can transfer their share in the property during their lifetime to a third party, or declare new shares, should circumstances change (ie, one co-owner starts paying a higher contribution towards the mortgage and wishes to have that reflected).
- Consider the options of co-ownership carefully - take advice on tax planning or inheritance tax issues if required
- Avoid ambiguity - change the tenancy or declare new or complex share ratios and provisions in a declaration of trust
- Review co-ownership arrangements regularly
- Remember: a property’s equity is only available for division after repayment of all mortgages, agents and solicitors fees
- If you are a tenant in common, make a will!