21 October 2021
Shared ownership of a residential property
By Nic Sheldrake, Director, Hayes + Storr.
If you are purchasing a property jointly with another party, it is essential that you discuss fully and openly the various joint ownership options open to you before you have committed yourselves to a purchase.
Ways of owning a property
The two most common ways of owning a property with someone else are:
1. Joint tenants:
This means that if one of the joint owners dies, his/her share of the property (which will be an equal division between all the property owners) automatically goes to the surviving owner(s), even if they have made a will which states that the property will pass to someone else.
If a Court ever has to look at the ownership of this property following death, divorce or bankruptcy, it will assume that you own it equally.
As joint tenants:
- you have equal rights to the whole property
- the property automatically goes to the other owners if you die
- you cannot pass on your ownership of the property in your will
2. Tenants in Common:
This means that if one of the joint owners dies, his/her share will not go automatically to the surviving owner(s). Instead, it will go to whoever they have nominated in their will. If they have not made a will, then the rules of intestacy will determine who inherits the property, which could have an unforeseen impact on the deceased person’s partner, family, and/or dependents.
The joint owners should agree the extent of each person’s share of the property, which can be divided in either equal or unequal shares.
If a court ever has to look at the ownership of the property following death, divorce or bankruptcy, it will assume that it is owned in the designated shares.
As tenants in common:
- you can own different shares of the property
- the property does not automatically go to the other owners if you die
- you can pass on your share of the property in your will
Declaration of trust
When you own property jointly a trust arises. Holding as tenants in common allows you to specify the terms on which you own the property. This can be set out in a declaration of trust.
A simple declaration of trust sets out in what shares the beneficial interest (the value in the property) is held, for example 75%-25% and what happens when the property is sold. However, the declaration can go into far more detail as to how a share might be transferred, sold or be subject to payment of other expenses, such as the mortgage and household bills.
Financial implications
You should consider how you will finance your purchase early on. Discuss your plans with a solicitor as they can impact other aspects of the transaction.
Choosing the right structure can also have tax advantages. For example, many buy-to-let investors purchase as tenants in common to take advantage of the individual Capital Gains Tax allowance on any profits they may make. However, there are potential downsides too. Even buying your own home with a partner or friend could create tax implications further down the line. For example, if you move out but keep your share of the property, you could end up paying more stamp duty on your next home. It is vital, therefore, to take expert independent financial and legal advice.
Some final words
Over time, your priorities or circumstances may alter. The declaration of trust can be reviewed and altered with the agreement of all parties. It is worth therefore, reviewing the declaration in the same way as we would recommend a Will review.
For further information, contact Nic Sheldrake in the property department on: 01328 863231 or email nic.sheldrake@hayes-storr.com.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
