The Eric Whitehead Partnership

When you buy a property it is often tempting to concentrate on matters such as location and price. However, if you purchase a property with your spouse or partner, there is another important issue which you will need to think about – the manner in which the property is to be jointly owned.

There are two ways in which a property can be jointly owned and the difference between them is significant.

Joint Tenants

The first method of joint ownership is as Joint Tenants. As Joint Tenants, the joint owners will own the property in trust with each other and their ownership is subject to what is known as the Rule of Survivorship. This means that if one of the joint owners dies, ownership of the property will automatically pass, in its entirety, to the survivor, regardless of the terms of the deceased co-owner’s Will.

Tenants in Common

The second method of joint ownership is as Tenants in Common. This is where co-owners specify the shares in which they would like to own the property, for example, 60:40, 70:30 and so on. The specified shares will often be based on the level of investment made by each co-owner when the property is purchased. Under this arrangement, the Rule of Survivorship does not apply. This means that if one of the co-owners dies, their share will not pass automatically to the surviving co-owner. Instead, the deceased co-owner’s share will pass in accordance with the deceased’s Will or (if no Will is in existence) via the Rules of Intestacy.

It is possible for a co-owner of a property to terminate a Joint Tenancy and to replace it with a Tenancy in Common. This is a fairly straightforward process and is known as “severing” the Joint Tenancy. However, it is important to note that when a Joint Tenancy is severed and a Tenancy in Common is created, the individual shares in the property at the point of severance will be deemed to be equal. In other words, unless the co-owners reach an agreement to the contrary, the shares will be split equally between the co-owners regardless of their respective levels of investment in the property.

It is also worth noting that severing a Joint Tenancy can be a very simple tax saving measure that could, as part of general Will tax planning, save a couple thousands of pounds in Inheritance Tax.