Wondering what ‘Tenants in Common’ means? We answer frequently asked questions about tenants in common, joint tenancy and why property owners might choose these types of agreement. Use the list below to quickly scroll down to the answer you need:
What does tenants in common mean in the UK?
Tenants in common are co-owners of a property where each person owns a specific share of that property. This is typically two people who own an equal 50% share each. However, up to four people can own a property as tenants in common, and shares do not have to be split equally.
What legal rights do tenants in common have?
Typically, tenants in common have the right to independently sell their individual shares in a property. They can also mortgage it or leave it in a will to any person they choose. Agreements are designed to offer flexibility to all common tenants, maximising the utility of the property.
What is the advantage of being tenants in common?
Owning a property as tenants in common allows each person with a share to control what happens to their share. Couples who are not married or in a civil partnership can also pass their property to children in two halves. This means making use of both partners’ inheritance tax allowance. Below are two examples to show how this might be useful.
Example 1
A married couple each have children from previous marriages. By owning their home under tenancy in common they can each make sure those children inherit their share of the property, as long as they have written this into their Will.
Example 2
An elderly couple owns their home as tenants in common. When one becomes ill and needs full-time care in a care home, they will be means tested (a calculation of how much they can afford to pay) based only on their share of the property. This could save money on the amount of care fees they need to pay.
Do tenants in common avoid care home fees?
It is possible to reduce the amount likely to be paid in care home fees by using a tenants in common arrangement. Most couples own their property as joint tenants, so if either person dies, the property passes automatically to the survivor. But should the survivor need to go into a care home, the whole value of the property would be used in assessing the payment of fees.
With a tenants in common agreement, the first spouse to die can pass their share to their children or into a trust. This way, if the survivor needs to go into care, they could only be assessed as owning a half share of the property.
What are the disadvantages of tenancy in common?
The overall control that each tenant has over their share can become a disadvantage to tenancy in common. Other tenants can do what they want with their share. This could include taking out a loan on their share without the permission of other owners. This could leave the shares of other owners at risk from lawsuits or negligence cases, as there is no separate protection of that share. Additionally, a tenant could decide to sell their share of the property to anybody else. They can do this without the permission of other owners.
Is tenants in common a good idea?
Tenants in common is a good idea for couples or co-owners who want control over the handling of their share. It gives owners full control over their share and allows for beneficiaries of their Will to directly inherit their share.
Is tenants in common the same as joint tenancy?
Tenants in common is different to joint tenancy. When a property is co-owned by two or more people in a joint tenancy agreement, if one of the co-owners dies, their share is immediately passed on to the surviving owner(s) without any court proceedings being needed. You can change from joint tenancy to tenants in common status easily enough.
Is it better to be tenants in common or joint tenants?
The main difference between a joint tenancy and a tenancy in common agreement is the way each co-owner’s share is handled. Tenancy in common gives each co-owner full control over their share of the property. On the other hand, joint tenancy is a simple way to ensure that, in the event of a co-owners’ death, the property is immediately fully owned by the surviving co-owner(s).
How many tenants in common can own a property together?
At least two and no more than four people can own a property as tenants in common. The same applies for a joint tenancy. More than four people co-owning a property would need to own using the device of a trust. Any number of people can be beneficiaries of a trust.
How does tenants in common reduce inheritance tax?
Co-owners of a property who are not married or in a civil partnership can still reduce inheritance tax by using a tenants in common agreement. They do this by passing on only their share of the property, which will be liable for less tax than the full value of the property.
Can a tenant in common force a sale?
Yes, a tenant in common can force a sale even if the other owners do not wish to sell. The co-owner wishing to force the sale would need to apply to a court for an ‘order for sale’.
Can a joint tenant force a sale?
Joint tenants cannot force other co-owners to sell unless they first apply to sever the joint tenancy. Then they would be able to apply to a court for an ‘order for sale’.
Can tenants in common sell their share in the UK?
Ideally, a tenants in common agreement will include terms that cover situations such as one co-owner wishing to sell. If there is no written agreement on this, co-owners can offer to buy the share of the individual wishing to sell. If you cannot agree, the co-owner wishing to sell has to apply to a court for an ‘order for sale’. This forces the sale of the entire property.
What happens when one of the tenants in common dies?
Under a tenants in common agreement, if one of the party dies, their share of the property passes to their estate. This means owners can leave their share of a property to somebody in their Will. This is different from joint tenants. Under a joint tenancy, when one party dies, their share of the ownership automatically passes to the other owner or owners.
Can you change the share of ownership under a tenancy in common?
As a tenant in common, you can change your share of ownership or hold unequal shares in a property. Changing your share of ownership could help you to save money. For example, you may give a larger proportion of the property to an owner paying a lower tax rate than the other owners.
Does Land Registry show tenants in common?
Yes, the UK’s Land Registry does show whether you are tenants in common or joint tenants. You can find this information in your Title Register Document – also held by your mortgage company if you have a mortgage.
If you are tenants in common, your Title Register Document will contain the following, or similar, phrase:
No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
If this is not present, you are likely to own the property as joint tenants.
Who holds the Declaration of Trust?
The name of a trustee must be included in the declaration of trust. The declaration of trust should also detail the powers that trustee holds in relation to the trust.
Who pays capital gains tax on tenants in common?
For capital gains tax purposes, if a property is owned by joint tenants and then sold, the profit from the sale (after all allowable deductions) should be split equally between the tenants. Each tenant should then declare that profit to HMRC.
If you own the property as tenants in common, then profits from the sale should be allocated according to each owner’s share, and then taxed accordingly.
What is the 7-year rule for tenants in common?
The 7-year rule is a way to potentially reduce the amount of inheritance tax owed by a beneficiary of your estate. As tenants in common, you can gift a portion of your property to a family member, and providing you live for at least seven years after the date of the gift, they will be exempt from paying inheritance tax. This is called a ‘potentially exempt transfer’ (PET).
Can I add my children as tenants in common?
Adding children as tenants in common is one of the most popular ways of passing property to children. Tenants in common mean that when you die, the property doesn’t automatically go to the owner, but is typically passed on in a will. To automatically transfer your portion of the property to your child, joint tenants is the most appropriate solution.
Will the Renters’ Reform Bill give extra rights to tenants in common?
The Renters’ Reform Bill (introduced to Parliament in May 2023) does not provide special clauses for tenants in common, but aims to protect all renters of all types. Its main provisions are to abolish Section 21 ‘no-fault’ evictions and to hold all rental homes accountable to the Decent Homes Standard.
This is good news for tenants in common as it will make the rental market more competitive with higher quality standards. It also adds to renters’ long-term rights to challenge landlords acting unfairly or illegally.
Update (June 2024): The Renters’ Reform Bill run out of time to be signed into law, since Parliament closed in late May 2024. At the time of writing, a General Election is only 3 weeks away, and the outcome will decide what happens next for the bill.
Find answers to more of your property-related questions on the HomeViews blog. Understand how EPCs work, how to get rid of Ground Rent, and much more with our helpful guides.
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