To have and To Hold

Article

09 January, 2007

Some practical considerations with co-ownership of property

People co-own property for all sorts of reasons from the traditional couples living together to the more recent, such as brothers and sisters buying together to get on the property ladder, the growth of amateur property development and buying to let has resulted in investors clubbing together as well.

When you are buying a property with someone else, whether it be your spouse, partner, relative or friend it is essential to decide how the property is to be held: it could make the difference between getting your fair share or losing it.

THE OPTIONS

JOINT TENANTS

If a property is owned as joint tenants then the proceeds of sale of the house belong to all the owners. Most importantly if one person dies then the survivors become the owners without any further formalities.

Most couples choose to hold their property this way because of the automatic right of survivorship. However, it may not be suitable if one or both of the parties has children from a previous relationship and they want to ensure that their children will ultimately inherit their share of the property. A further consideration is Inheritance Tax planning; it may be beneficial for each party to pass their share to their beneficiaries rather than to each other so taking full advantage of their individual tax relief for Inheritance Tax purposes.

Just because a property is held as joint tenants does not mean that the ownership is set in stone. A notice can be served on the other co-owners, severing the joint tenancy and creating a tenancy in common without any formal Court procedure.

TENANTS IN COMMON

This method of ownership means that each co-owner of the property owns their own distinct share of the property which is capable of being disposed of by a will, or if there is no will the deceased owner's share will pass in accordance with the rules of intestacy.

If the co- owners wish to own the property in unequal shares then a separate document called a Declaration of Trust is needed to set out how the proceeds of sale are to be divided.

Tenants in Common should be considered for the following situations:-

  • where business partners are purchasing property
  • co-owners who are not married
  • co-owners whose estates are potentially liable for Inheritance Tax
  • where a property is producing income
  • where one co-owner has gone into a nursing home
DECLARATIONS OF TRUST

If a declaration of trust is required what do you need to consider?

  • the proportion that each co-owner is to receive of the proceeds of sale
  • who is to pay for the outgoings on the property such as the buildings insurance and on going property repairs
  • if there is a mortgage on the property, is it intended that the co-owners contribute equally?

Where two people live together, do they want provision for the survivor of them to continue to live in the property with the family of the deceased postponing their interest in the eventual proceeds of sale? If so, what would be the terms of their continuing residency e.g. would there be rent to pay?

WILLS

Regardless of how the property is held it is vital to consider either reviewing an existing will or to make a new will to ensure that the ultimate disposal of the property is dealt with in accordance with your wishes. Having a share to leave and then not leaving it to the person you wanted would undo all the previous planning.

Michelle Thompson is a Partner and Head of a team of Conveyancing Solicitors. She can be contacted on 01254 222399, or email Michelle Thompson

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