Tenants in common and Inheritance Tax

Getting on the property ladder can be extremely tough, therefore buying with another person can be an attractive option, allowing you to beef up a deposit and share the repayments. People usually buy a property on their own or with a partner, however it’s actually possible for up to four people to share ownership of a property – even if they’re not related.  

If you do decide to go down this route there are two types of joint ownership – ‘tenants in common’ and ‘joint tenancy’. Here’s how they differ:

Joint tenants

As joint tenants:

  • You have equal rights to the whole property.

  • The property automatically goes to the other owners if you die.

  • You can’t pass on your ownership of the property in your will.

Tenants in common

As tenants in common:

  • You can own different shares of the property.

  • The property doesn’t automatically go to the other owners if you die.

  • You can pass on your share of the property in your will.

Joint tenancy is most common for married couples while tenants in common is more popular with friends or relatives.

Help with cutting your inheritance tax (IHT) bill

The potential benefits of owning property as tenants in common (especially for friends and unmarried couples buying together, and to reduce IHT) are becoming more well-known. Due to the rising cost of housing, a property alone can push estates over the IHT threshold. Tenants in common first grew in popularity as it allows people to pass on the value of their home in two halves – effectively doubling the allowance. In 2007, then Chancellor Alistair Darling announced that married couples and civil partners would be able to transfer their inheritance tax to each other however this was not the case for other joint owners who still needed to take advantage of tenants in common. By splitting the home in two, the half belonging to the first partner to die could be passed straight onto their children or any designated beneficiary and as long as the half is worth less than £325,000, no tax will be due. When the other partner dies, their half, may also be below the threshold, so no IHT again.

Ending joint ownership

As joint property owners, you all have equal rights to live in the property – so if one person wants to sell, the rest need to agree. This can cause issues if you are going through a divorce but one of you wants to stay living in the property or if one of a group of friends gets a new job and wants to move away from the area. If you want to sell and others don’t, you’ll have to seek a court order which can be very expensive! A solution to this is to draw up a legal agreement before purchasing the property which defines under what circumstances the property will be sold.

And finally…

There are pros and cons to both types of joint ownership. For more information please contact our Mortgage partners John Charcol

 

Sources

Tenants in common vs joint tenancy, www.which.co.uk, viewed 26/03/18

Joint property ownership, www.gov.co.uk, viewed 26/03/2018

Tenants in Common, www.thisismoney.co.uk, viewed 26/03/2018

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