Buying a property is an exciting venture, a new beginning sealed with a solid investment, yet it can be quite complicated on account of the tax realm.
What's the difference between Joint Tenants and Tenants in Common?
When buying a property together, it's important to understand the differences between joint tenants and tenants in common.
- Joint tenants are when two or more people are on the title deed for the same property, and each has an equal right of ownership over the entire asset.
- Tenants in common on the other hand divide up ownership rights into separate shares that can be held differently among several people. Tenants in common can divide their ownership right according to percentage shares, and each person can pass on their share of the asset to someone else at death.
Under joint tenancy, all co-owners have equal rights to the whole property regardless of their percentage share. This means that a sale or a mortgage can be made without consent from other tenants, and all owners will benefit from rent income and costs such as repairs.
In the case of joint tenants, if one tenant dies then the remaining tenant(s) will automatically inherit the entire property as it passes directly to them.
Tenants in Common
Tenants in common have more flexibility when it comes to ownership, meaning each owner can choose what percentage of the whole property they own and have separate titles for each share. This means that individual owners may pass on their share of the asset to someone else in their will or sell it separately without the other owner's permission.
When applying for a mortgage, only the people with ownership of that mortgage share are required to sign the agreement.
It is possible to change between joint tenants and tenants in common by transferring the property into another name. This process is known as ‘severance of joint tenancy’ and requires all tenants to agree on the transfer.
Joint Mortgage Tax Implications
It's important to be aware that there are certain tax implications when applying for a joint mortgage. The amount of tax you must pay may depend on whether you own the property as joint tenants or tenants in common, as this can affect the way your income is taxed.
For joint mortgages, any rental income earned from the property will be split equally between all tenants and each person will need to declare their share of the income on their tax return.
If you’re a tenant in common, then any capital gains you make upon selling the property may be subject to Capital Gains Tax. You can check Capital Gains Tax on Property in 2023 here
This can be a complex area, so it’s important to seek advice from a qualified financial advisor or accountant.
How to Check if Property is Joint Tenants or Tenants in Common
It's easy to check whether a property you're considering buying as joint tenants or tenants in common. You can do this by checking the title deed of the property, which is a legal document that records who owns it. It should clearly state if the property is held as joint tenants or tenants in common.
It's also important to check any existing mortgage agreements, as this will determine who is legally responsible for making payments, and whether all owners need to agree before taking out a new mortgage.
If you're still unsure, it's best to contact a property lawyer who can advise you on the best way forward.
In any case, if you're considering joint ownership of a property always do your due diligence and consult with a qualified professional to make sure all parties involved are aware of the legal implications. While joint tenancy and tenants in common may seem similar, the differences can have far-reaching financial consequences for all involved.
Joint tenants and tenants in common are both forms of joint ownership but they have very different implications. Joint tenancy gives each owner equal rights to the entire asset, meaning any sale or mortgage requires all owners' consent. Tenants in common allows for more flexibility, as each person has a separate title to their own share of the property, which can be passed on separately in a will.
It's important to understand the legal implications of joint tenancy or tenants in common when considering buying property together so that all parties are aware of their legal rights and responsibilities. A qualified professional can provide advice on the best way forward for your particular situation.
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