Joint Ownership of Property
In conveyancing transactions there is often more than one individual purchasing a property. There are two ways in which the property can be held by the owners, Joint Tenants or Tenants In Common. The most common form is Joint Tenants whereby the property is owned equally by the co-owners and the co-owners have a right of survivorship. Therefore if one owner dies the owner’s interest in the property is automatically transferred to the surviving owner/s.
Tenants in Common
However, a method of ownership that prospective purchasers are much less commonly aware of is Tenants In Common. When registered as Tenants in Common each co-owner is regarded by the law as having there own separate interest in the property, and this interest can also be of differing percentages. Therefore if a co-owner died the interest they held in the property would form part of their estate and pass by inheritance to that owner's heirs, by intestate succession or by will if one is in place.
There are a number of reasons why owners may be well advised by their conveyancing solicitors to hold the property as Tenants in Common. Owners may be contributing differing amounts of capital to the purchase of the property and by holding the property as Tenants In Common this interest can be protected. The property can be held in differing percentages of ownership in order to reflect the capital invested in the property.
In addition in the modern world whereby more couples are choosing to cohabit rather than marry they may choose to leave their share of the property to somebody other than their partner, by holding the property as Tenants in Common this can be arranged whereby if they purchased as Joint Tenants it would automatically go to the surviving partner. An example of this of owners who may decide to hold the property as tenants in common is during second marriages where owners may wish to protect the interests of any children they may have had during the first marriage. By holding the property as Tenants in Common after their death the interest in the property can be passed to their children or any other chosen person/s.
Joint Ownership of Property and Inheritance Tax
Over the last few decades house prices have dramatically risen and more properties are above the threshold to incur Inheritance Tax. However if the property is held as Tenants in Common only the percentage held by the owner who has died will be subject to Inheritance Tax. If this is below the current threshold then inheritance tax will not apply and the property will be passed to there chosen successor (such as a child of the owners). When the second owner dies their percentage of the interest in the property can also be transferred to the same successor but only the percentage being transferred will be subject to inheritance tax and if this percentage is less than the current threshold Inheritance Tax will not apply.
It is important when there is more than one purchaser that each prospective purchaser carefully considers the impacts of both methods and makes an informed decision based on their conveyancing solicitor's advice on how best to hold the property.
Disclaimer: this is an introductory guide and is not a definitive source of legal information.
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