A joint tenancy describes two or more people living in a property they have purchased together and own in equal shares. Further, a joint tenancy allows for the right of survivorship, meaning that if any owner passes away, their share of the property is automatically distributed among the surviving owners. For a married couple, joint tenancy is a simple way of ensuring each spouse’s security.
In some instances, however, joint tenants may decide to sever the tenancy and revert to tenants in common. This can be due to a relationship breakdown, to benefit from more a favourable tax situation, or to eliminate the right of survivorship, allowing co-owners’ shares in the property to be distributed to other individuals as part of their estate planning process.
In what circumstances is the severance of joint tenancy beneficial?
1. Estate planning.
If two or more people who are not in a romantic relationship buy a property together, either to live in or as an investment, they may not want their share of the property to pass to the co-owner in the event they pass away. A tenancy in common allows them to distribute their share in accordance with their preferences.
2. Tax benefits.
Tenants in common can share rental income from an investment property in a more efficient manner if one owner is in a lower tax bracket than another. In this instance, the unequal share must be supported by a declaration of trust; what’s more, if the co-owners are married, HMRC will require a Form 17 disclosure. Conveyancing solicitors such as Parachute Law can process all documentation concurrently.
3. Increased control.
A joint tenancy prevents either party from selling or gifting their share in the property to a third party; however, with a tenancy in common, either party can exit the agreement by distributing their shares in accordance with their preferences and individual circumstances.
In conclusion, there are various reasons property owners may wish to sever a joint tenancy, and there are benefits to doing so in the right circumstances.