There are two main options of how you will own your property with your partner: Joint Tenancy and Tenants in Common.
If you are a joint property owner, it is important that you understand the implications of the way in which your property will be dealt with as part of your estate once you have passed away.
JOINT TENANCY
Most joint owners of property are “Joint Tenants”. This is usually automatically arranged when the property is purchased, particularly if there is a mortgage. With a Joint Tenancy, all parties to the agreement own the property jointly and on death, the property automatically transfers to the surviving parties irrespective of the length of ownership or any other stipulation in your Will.
TENANTS IN COMMON
With Tenants in Common, each person owns their own share in the property. This would normally be equal shares, but any percentage split is possible. Each party is then free to leave their share of the property to whoever they wish as part of their Will.
ADVANTAGES OF JOINT TENANCY
The advantages of joint tenancy are the potential avoidance of probate because your property automatically passes to the survivor. The survivor may not need to go to probate; all they would have to do is show a death certificate to have control of the property.
DISADVANTAGES OF JOINT TENANCY
If one of the owners has a debt, a creditor of that owner may force a sale of the whole property. Placing property in joint tenancy may disinherit children or others since property held in joint tenancy passes to the survivor no matter what the deceased joint tenants Will directs and no matter who the decedent’s heirs are under state law.
ADVANTAGES OF TENANTS IN COMMON
Where a property is owned as Tenants in Common, each owner owns a specified share and can leave that share in a will. This can have some distinct advantages. For example, if you have children from a previous relationship, they can inherit your share whilst still allowing your current spouse or partner to live there for life.
Another example is that this may be a way to ensure that if you die and your spouse or partner subsequently needs to go into residential care, at least half the property can be protected from being taken by the local authority to fund care fees.
Tenants in Common allows couples who are not married or in a civil partnership to use a discretionary trust and therefore reduce the amount of Inheritance Tax which might otherwise be payable.
Also, there can be an inheritance tax saving on second death if you pass away owning only 50% of the home rather than 100% – HMRC assesses inheritance tax on the market value of an asset and recognises that the market value of 50% of a property is less than 50% of the market value if you owned an entire property i.e. half a house is less marketable than an entire house. This can be as much as a 10% saving of the value of the property from the inheritance tax calculation.
DISADVANTAGES OF TENANTS IN COMMON
Tenants in Common is a more complex arrangement and some people may prefer the simplicity and efficiency of the home passing by survivorship. In some cases where the first partner needs to go into care, Tenants in Common can produce unwanted disadvantages. The second partner living in the home may become stuck in a position that if they wanted to move, the local authority would take the proportion of the property owned by the person in care – effectively preventing the second person from ever moving home after the first has gone into care.
To change ownership from “Joint Tenants” to “Tenants in Common”, a Notice of Severance of Joint Tenancy must be agreed and signed by all parties. This agreement must then be registered with the appropriate Land Registry Office and any mortgage lender must be notified. This is a straightforward legal transaction, the cost of which will be minimal in relation to the long-term benefits that could be achieved.
At CL Wills & Estate Planning, we will discuss the options and how they will impact you and your planning. We can then assist severing the tenancy and notifying Land Registry of the changes if this is the appropriate course of action.
For expert advice speak to our friendly team today.