There are two different ways of owning property– as Joint Tenants v Tenants in common. The way in which the property is own determines exactly who owns what. Thus, and also what happens when one of the joint owners dies and how any income tax.
What are Joint tenants?
Where two or more owners own a property as joint tenants. They own the whole property rather than owning individual shares. Each owner has equal rights to the whole property. When one of the joint owners dies, the remaining joint owners own the whole property. The deceased is not able to pass his or her share on to someone else.
Helen and Harry are married and own their family home as joint tenants. The couple has three children. If, for example, Harry dies first, his share of the property passes to Helen. Harry cannot leave his share of the property to his children.
Where a property owned as joint tenants is rent out. The income treated as arising in equal shares as all owners have an equal stake in the property. For spouses and civil partners, this is the default position. There is no possibility of making a Form 17 election as the property owned as joint tenants can only be own.
What are Tenants in common?
Tenants in common own individual shares in the property. Which have more flexibility than joint tenants on what they do with their stake in the property? On death, their stake does not go to the other joint owners. Rather it will follow the provisions of the will (or if there is no will, the intestacy provisions).
It will be beneficial to own property as tenants in common. Thus, if you want to leave your share of the property to someone other than the other joint owner.
Jack is married to Jane. Each has children from previous relationships. They own a holiday cottage as tenants in common. In their wills, they have each made provision for their share to pass to their own children.
Where the property let out owing to the property as tenants in common provide more flexibility on how the income is divide for tax purposes. The joint owners are spouses or civil partners, the income treated as arising. Where the actual beneficial ownership is unequal. They can elect (on Form 17) for the income to tax under their own shares where this is beneficial. If the tenants in common are not married or in a civil partnership. The income taxed under reference to their actual stake in the property.
Changing ownership status
It is easy to change the type of ownership, for example, if the property is own as joint tenants. Then, it may be desirable to own it as tenants in common to enable each owner to leave their share to someone else. A property can also be changed from sole ownership to joint ownership. Either as tenants in common or joint tenants.
Extra Notes: Law of Property Act 1925, ss. 34, 36;. ITA 2007 ss. 836. 837.