Buying a property with someone else has become more prevalent in recent years.
There are several ways that you can structure a co-ownership arrangement.
And one of the most popular is known as tenants in common.
What is tenants in common?
Tenants in common is a type of property ownership. It means that several people have a designated share in the house.
This share is not always equal, meaning that some people can own more of the property than others.
A person’s share can be transferred to someone else under tenants in common.
You can pass it on to a child, sibling, or friend. This can sometimes be problematic if the two people living together fall out.
When someone passes away under a tenants in common ownership model, their share doesn’t automatically transfer to the other person.
Their will outlines who the share goes to. If a will doesn’t exist, then the intestacy laws come into effect.
Tenants in common vs. joint ownership
A popular alternative to tenants in common is a joint tenancy. It means everyone has an equal share of a property.
There are significant differences between tenants in common and joint tenancy property models.
For example, a joint tenancy ensures that your half of the property goes to your loved one if you pass away.
And tenants in common is useful when the people involved don’t intend to live together forever, such as friends who have bought property together.
Is a deed of trust needed for a tenants in common?
Many experts recommend creating a deed of trust when living as tenants in common.
This document explains how your house is divided. If one person owns more than someone else, this is put in writing.
If you sell your house, this deed protects everyone involved. It ensures no one gets more or less than they deserve
You can update a deed of trust as time passes if you wish. This might be because one person puts more equity in.
Or perhaps someone has entirely paid for renovations on the house. You could want to reflect this in the deed.
Get advice from a qualified solicitor when creating a deed of trust.
Advantages of tenants in common
Inheritance
Tenants in common is ideal if you want someone to inherit your house, who might not otherwise do so.
This could be a partner who you’re not married to. Or one of your children or siblings, but not the others.
If you’re not living with this person, they won’t get your share under a joint tenancy.
Flexibility
A tenants in common ownership model is highly flexible.
For example, if one of the parties wants to put more equity in the house, or pay for all renovations, then you can reflect this in the share structure.
It helps to ensure that everyone’s financial contribution is rewarded.
Disadvantages of tenants in common
Lack of control
A drawback of tenants in common is you cannot control who your co-owner leaves their share to.
This means you might live with someone you don’t get along with. Over several generations, strangers could end up living together. This can get messy.
Need for a will
A tenancy in common makes it essential that you make a will. If you don’t, you can’t control who your share goes to.
The laws of intestacy will kick in. Creating a will requires an extra fee to a solicitor and involves some difficult decision-making.
Things to consider before entering tenants in common
Relationship with co-owner
Your relationship with your co-habitant is one of the most crucial details.
You might not always get along well. You should consider getting a deed of trust to protect everyone’s rights.
Life plans
Your long-term plans are important too. Do you intend to marry the person you’re living with? And do you have any children you’d like to leave your house to?
Taxes
It’s worth speaking to a tax specialist to see how this structure impacts you, too.
Many different kinds of tax can come into play, especially if you’re renting, including:
- Capital Gains Tax
- Income tax
- Inheritance tax