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When purchasing a property, whether it’s an investment property or a family home, one of the key decisions you’ll need to make is how you want to hold ownership. Two common forms of property ownership in many jurisdictions are “tenants in common” and “joint tenants.”
These arrangements have significant differences from tenants in common in terms of ownership structure, rights, and legal implications. In this blog post, we’ll explore the key differences between tenants in common and joint tenants and help you understand which option may be the right choice for your situation.
Tenancy in: tenancy in common is a form of joint ownership where multiple individuals own a property together, but each party by common agreement holds a separate and distinct share of the property. Here are the key features of tenants in common:
In a tenancy in common arrangement, each owner can hold a different ownership percentage in separate share of the property. This means that one party might own a 30% share of whole property, while other owner or another might own 70%.
Despite having different ownership percentages, all tenants in common have equal rights to access, sell and use the property. No single owner has more rights than another when it comes to the property’s sale and use.
Upon the death of one owner, their share of the person or other owner of property can be passed on to other owners, their heirs, or beneficiaries through their will. This can have implications for inheritance tax.
It is often recommended that each partner or co owner partner or tenant in tenancy in common seeks independent legal advice before entering into this arrangement to understand their rights and responsibilities.
Each owner can sell or transfer their own share of the property to other tenants, family members, children or individuals without the consent of the other tenants in common.
Joint tenancy, on land registry on the other hand, is a form of co-ownership where one mortgage and all owners collectively own the land registry entire property as a single entity. Here are the key features of a joint tenancy with tenants:
Joint tenants each have an equal share of the property, typically 50% each. This general rule means that no owner beneficial joint mortgage or tenants can claim a larger share than others with joint mortgage.
One of the most significant differences between joint tenants and tenants in common is the right of survivorship. In joint tenancy, if one owner dies, their share automatically passes to the next surviving owner, partner or other former joint owners, tenants or tenant(s) without going through probate.
The property is considered a single entity, and the ownership or sale of whole property cannot be divided or sold separately. This can make it challenging to sell or transfer a portion or full ownership of the property.
Because the property passes automatically to the children of the surviving partner or joint tenant(s), there are usually no inheritance tax implications.
Now that we’ve explored the basic features of tenants in common and joint tenants, let’s delve deeper into the key differences and implications of these two two forms of ownership structures.
Tenants in common allow for unequal shares of tenancy in common by buying and individual ownership percentages, while other such property as joint tenants have equal shares and ownership cannot be divided.
The right of survivorship in joint tenancy simplifies the transfer of joint ownership, upon the death of one joint owner only. In contrast, tenants in common require a legal document (usually a will) to determine the distribution of the deceased joint owner’s full share of the property.
Tenants in common have more flexibility than joint tenant when it comes to selling or transferring their ownership share. Joint tenants do not have this option, as they must maintain the property as a whole.
Inheritance tax implications vary between tenants in common and other joint tenants only. It’s essential to consider the estate tax consequences when choosing an ownership structure.
Consider the nature of your agreement and your relationship with co-owners. Joint or tenancy in common is often preferred among spouses or partners due to the right of survivorship, for example, while tenants in common may be more suitable for co-owners unmarried couples with unequal financial contributions or unrelated individuals.
The type of property you’re purchasing can also influence your choice. For investment properties, for example, you might opt for a property with tenants in common to define ownership percentages clearly.
For a property purchase a family home, for example, joint tenancy with the right of survivorship and joint mortgage may make more sense.
Let’s take a look at two scenarios to illustrate how these ownership structures work in practice:
Scenario 1: Married Couple
A married couple purchases their family home as joint tenants. In this case, if one spouse were to pass away, the surviving spouse automatically inherits the entire property, avoiding probate and potential complications.
This joint mortgage arrangement is suitable for married couples who want to ensure their spouse or children inherits the mortgage on the family home without delay.
Scenario 2: Investment Property with Friends
A group of friends decides to invest in a rental property. They choose tenants in common because they plan to contribute different amounts of capital. In this arrangement, they each own a specific percentage of the property based on their financial contributions.
If one person or friend wants to sell their share to another person or investor, they can do so without requiring approval from the other owners.
Choosing between tenants in common and joint tenants is a crucial decision when purchasing a property, and it should align with your specific circumstances and objectives. Joint tenants, vs tenants in common offer simplicity and the right of survivorship, making it a popular choice among spouses and partners.
In contrast, tenants in common allow for unequal joint ownership and percentages and more flexibility in property management and transfers.
Before making a decision, it’s essential to consult with legal and mortgage professionals and consider factors such as your relationship with co-owners, the type of property, and your long-term goals.
Ultimately, the right choice will depend on your unique situation and priorities, so be sure to make an informed decision to protect your interests and investments.