Tenancy in Common & Your Will
It is often the case today that parents will seek to ensure that children from a previous relationship are not disinherited. A way to ensure the family home is distributed without risk of any disinheritance is to set up the ownership of the property as “tenants in common”, as opposed to joint tenancy, which is the typical ownership arrangement for couples who buy a house together.
Tenancy in Common & Your Children
The tenants in common arrangement ensures that a parent can secure their share of the property to their children, while the surviving partner continues to live in the property, and their share can only be passed on to the children upon death of the remaining partner. The tenant in common can gift their part of the property in their Will, however, with a joint tenancy, this is not possible. You can also use the tenants in common arrangement for inheritance tax planning, as it may mean you do not have to sell your home if you need to go into care. It is also a way for couples to protect their share of the property in case of separation or divorce.
Owning property as tenants in common with your partner means you both own the property, but own separate shares in the property. Usually, the shares are owned on a 50/50 basis, but if one person is investing more of their money into the property than the other, the shares can reflect the amount each person has invested. When a tenant in common dies, their share of the property passes into their estate and is dealt as per the terms of their Will. If no Will is in place, then the rules of intestacy in England and Wales would apply.
Inheritance Tax Planning for Cohabitees
Tenancy in common is a great option for cohabitees looking to mitigate their inheritance tax liability. In England and Wales, there is no inheritance tax to pay on assets passed between husband and wife in a Will, so the surviving partner does not have to pay inheritance tax. It is when the second partner dies that the children will have to pay inheritance tax. Currently, inheritance tax is charged at 40 per cent on any assets over £325,000 for individuals, and £650,000 for married couples and civil partners. Unmarried joint property owners will not be able to benefit from this ability to transfer inheritance tax allowances as it is currently only available to married couples and civil partners. By becoming tenants in common, however, they can split the home into two shares, passing on the first half to the beneficiary on the death of the first partner, while the remaining partner lives in the house until they die. Splitting the asset in half significantly reduces or negates any IHT liability; with careful planning, you could be saving your children from a hefty tax bill and unnecessary stress. Speak to our Trust & Estate Planning Consultants today about how we can help you with tax planning for the future.
Tenants in Common vs. Joint Tenancy Arrangements
Owning your property as joint tenants means there is no separate distinction between tenants and you must act together as a single owner. It is not possible to donate your share of the property in your Will, nor do you own any specific shares in the property. When one of the tenants die, the ownership of the tenancy automatically transfers to the surviving owner. This type of ownership is common where married couples or civil partners are happy for their partner to be the absolute owner of the property when they die. It is not possible to change the ownership arrangement in a Will, and any provision made by a joint tenant which attempting to pass the property to anyone other than a joint tenant will be deemed invalid. It is important to consider the options available to you because the way in which you own your home with your partner can affect how your it will be distributed in the event of your death.
Changing from Joint Tenancy to Tenancy in Common
If you currently own your property on a joint tenancy basis, speak to one of our Will & Estate Planning Consultants. We can advise you on the best arrangement to suit you and your family. If you are not sure on what basis you own your property with your partner, it is possible to check the property title deeds. Our Will & Estate Planning Consultants are on hand to give you guidance on the best way forward for you and your family. If you own a property and are registered as a beneficial joint tenant and want to change the ownership to tenants in common, we can prepare what is known as a “mutual notice of severance of the joint tenancy” which confirms that the joint tenancy has ended, and guide you through the process, advising you every step of the way on the best solutions for you and your family.