Co-Ownership of Houses and Flats, Land and Buildings17th March 2021
The are many ways of owning land and buildings, including your home, along with other people. The simplest types of co-ownership are referred to by lawyers as owning as Beneficial Joint Tenants under Joint Tenancy or as Beneficial Tenants in Common under a Tenancy in Common.
Deciding which is best for you and your co-owners is vital and needs to reflect the purposes for which you have acquired the land, your plans for it and your individual choices in respect of Inheritance Tax and Estate Planning.
The most important consideration is that under a Joint Tenancy, the co-owner who lives longest becomes the sole owner of the property. The others lose all ownership rights when they die. If this does not correspond with the wishes of all the owners of the property, then a Tenancy in Common is required.
This automatic inheritance by co-owners means that Joint Tenancy is rarely suitable unless the co-owners are a married couple (or are in a Registered Civil partnership). Even if the co-owners are a married couple or Registered Civil Partners, a Joint Tenancy may not be suitable as it reduces their Estate Planning and Inheritance Tax planning options.
Under a Joint Tenancy there are no defined ownership shares. Each co-owner has equal rights over the property, for example, the right to occupy the property or the right to receive rents if the property is let. They also have the same duties in respect of the property, for example, equal contributions for repairs and maintenance and equal contributions to any mortgage. If this does not correspond with the wishes of all the owners of the property, then a Tenancy in Common is required.
As Joint Tenants have equal rights and duties in respect of the property, they are always treated equally for tax purposes. Therefore, each co-owner is considered to receive an equal share of any rent for Income Tax purposes and to own equal shares of the value of the property for Capital Gains Tax and Inheritance Tax purposes.
Tenancies in Common
Under a Tenancy in Common, each co-owner has a defined share of the property and all the financial costs and benefits associated with ownership will be due in those shares. For example, the costs of repairs, maintenance or any mortgage on the property, the benefit of any rent received, and the eventual sharing of sale proceeds will be in those fixed shares.
For all tax purposes, each co-owner is treated as owning their specified share, so they pay Income Tax on that share of any rent and own that share of the value of the property.
Crucially each co-owner owns their defined share of the property and can give it to whoever they wish under their Will. If they have no Will in place when they die, then their share of the property will pass to whoever is entitled to it under the “Intestacy Rules” set out in Administration of Estates Act 1925. This gives opportunities for Estate Planning and Inheritance Tax planning which are not available to co-owners under a Joint Tenancy.
A defined share of a property under a Tenancy in Common can also be given away during its owner’s lifetime, for example as part of their Inheritance Tax planning.
Can you change a Joint Tenancy into a Tenancy in Common?
Any co-owner can change the basis of their co-ownership of a property from a Joint Tenancy into a Tenancy in Common simply by serving a formal notice of that intention on the other co-owners of that property. But this can only change the co-ownership into a Tenancy in Common under which the co-owners own the property in equal shares. Any other change requires a subsequent gift of the relevant part from one co-owner to another, which is likely to have tax consequences which should be explored in advance.
Where a Joint Tenancy becomes a Tenancy in Common, this should be notified to the Land Registry by the registration of an appropriate restriction.
Other forms of co-ownership
Joint Tenancies and Tenancies in Common are the simplest forms of co-ownership of property. They deal only with the ownership of the property and control the practical consequences of that. Where the purpose of acquiring the property requires something more subtle and nuanced, for example, if one co-owner is to be the only person allowed to occupy the property or if certain expenses (such as a mortgage) are going to be met by only one co-owner, then a more sophisticated trust will be needed.