When buying a property together, you will be asked how you wish to hold the equity. This is an important decision as it will affect how the sale proceeds are dealt with when you come to sell or if you pass away.
There are several options available, and what may be suitable for one transaction may not be for another depending on your individual circumstances.
Beneficial Joint tenants
You can hold the property as joint tenants; this means that you both hold the property as a whole and neither party holds a defined share.
Holding the property as joint tenants means that if one of you were to pass away, the property does not form part of your estate but would automatically go to the surviving co-owner. You could not then leave an interest to another party in your will.
This option tends to be preferred for co-owners who are married or in a civil partnership where they would want their spouse/ partner to have their share of the property.
If you are contributing towards the purchase price in unequal shares or have children from a previous relationship/ marriage where expectations of inheritance need to be considered, you may wish to consider tenants in common.
If you are selling a property, you may also wish to check how you held your existing property before giving instruction on your purchase, as any money protected with your existing home would no longer be specified if you were then to buy as beneficial joint tenants.
Should holding the property as beneficial joint tenants no longer be appropriate, you can apply to sever the joint ownership which will then split the property into 50/50 shares.
Tenants in common
Holding the property as tenants in common means that you will hold an agreed share of the property. This can be in equal or unequal shares depending on your contribution at the time of your purchase.
As tenants in common, your share of the property will be divided and treated separately from the outset and your share of the property will be subject to normal inheritance tax rules.
Your share of the property would not automatically pass to the surviving party but would pass according to your will or the rules of intestacy should you not have a will.
The surviving co-owner would not be able deal with the property on their own and would need to appoint a third party to join in with any dealing, usually the personal representatives of the deceased co-owner. Therefore, it is essential that a will is in place to allow for the representatives to be appointed and to pass on the interest of the property to the appropriate person/s in accordance with the will.
It will be assumed that the shares by tenants in common are held equally unless specifically recorded, this can be done via a separate declaration of trust or noted within the transfer of the property. If the shares are not defined and recorded, then equal shares are presumed.
Apart from the uncertainty of litigation, the potential cost of going to court to obtain a different share should also be born in mind. Fixing the shares can therefore avoid disputes, but if you decide at some point in the future to incur significant expenditure or some other action is contemplated that will change the original balance of interests, you should enter into a new deed to acknowledge the resulting different shares.
You should also ensure that any outgoings and expenditure are appointed on the same basis as to the fixed shares to maintain the relevance of the initial appointment.
Declaration of Trust
A Declaration of Trust is an additional agreement that can be put in place on completion of the purchase which will go into further detail on how the equity in the property is held and how sale proceeds would be split. This may be appropriate where the initial contribution of funds when the property was purchased is more complex, or how sale proceeds should be dealt with are not straightforward.
Our Private Client department can assist in further advice when it comes to a declaration of Trust and they can prepare this for you.
Next Steps…
If you’d like any advice on the above, or any other Conveyancing matter, please call me on 01530 564498 or email l.bourne@timms-law.com
Fore more information about Conveyancing, please visit our webpage here.
