19th October, 2018
We are often faced with hurdles – trip or jump? They start as early as our first breath, but span life’s many stages. Sportsman often speak of facing hurdles; challenges that they have to overcome to get a winning result. People in everyday life also face their own hurdles, be it a new job, health issues or dealing with family matters. In any case, you nearly always need to call upon others to help propel you up and over.
An important hurdle nearly everyone faces is a property purchase. It’s a huge decision – one which we often approach without knowledge; relying on others to guide and support us.
64% of the British population own their home property. Such a large number would give the impression that we are experts in property ownership. However, when it comes down to decisions on property ownership, it appears that we are nonchalant; more interested in the actual purchase than ensuring everything is set up correctly. In the majority of property purchases we allow our legal teams representing us to dictate this decision, rather than discussing and understanding the consequences.
Whether you’re a first time buyer or long term property owner, the consideration of whether to own a property as joint tenants or as tenants in common remains a significantly important one. Setting your legal ownership structure up correctly can be the difference between estate preservation or decimation.
So what are the two types of ownership and what are the key differences?
The most commonly used tenancy arrangement is known as a ‘joint tenancy’. This form of ownership is common for those who are married or in civil partnership, wishing for each other to take control of the whole property on the death of the other.
It is not appropriate for non-married/non-civil partnership property owners, who wish to pass the property asset on death to someone other than their co-owner.
The alternative is ‘tenants in common’. It is almost always used for commercial property or buy-to-let arrangements but can also be used for married/civil partnership couples. The main differences between this and joint tenants are that the ownership doesn’t have to be 50-50 and, on death, the part owned by the deceased is included in their estate for probate.
The flexibility in percentage ownership allows individuals committing higher deposits than their co-owners to have a bigger split of the property, or alternatively it can enable tax planning for couples owning rented property where the majority holding would be placed on the lower earner.
The passing of assets to people other than your co-owner may be valid if you make a purchase with a friend or partner but wish to keep your assets separate. It can of course also present your co-owner with a liability if one of you were to die, so careful planning around this is necessary.
Where else might a tenancy in common be appropriate for our clients?
When estate planning for our clients, the most frequent question raised is “can I gift or remove my property from the financial checks for long term care?” Unfortunately, under current legislation the answer is no. However, a tenants in common property ownership can help create a hurdle! By combining a valid Will with tenants in common property ownership it is possible to direct assets for a married/civil partnership couple to another on first death. This form of planning is perfectly legal provided you are fit and well when making these arrangements. By passing the deceased ownership to others it will mean that if the second owner goes into care that only their share of the property will be considered for care costs.
Anything else we should know?
At DB Wood we are strong advocates of our clients holding a Property and Financial Lasting Power of Attorney. The aim is to ensure trusted friends or family control the care costs rather than leaving everything down to the local authority. Did you know that a husband and wife can’t make financial decisions for each other if they don’t hold a lasting power of attorney for each other? These decisions are likely to include what happens to your property.
What’s your overriding message?
With either form of property ownership there are a number of variables to consider. We urge you to ask us, or your solicitors, to outline the benefits and consequences so that you can make an informed choice.
If you are unsure about which tenancy arrangement you have for your existing property, you should contact your local land registry and they will be able to confirm which is in place. It is possible to change the tenancy but you should make sure you have the relevant information prior to this.
Don’t be afraid of the hurdle, make sure you can confidently take it in your stride.
If you are interested in discussing any of these matters further, please contact us …