Tenants in Common explained and help available

Below we'll take a detailed look at the Tenants in Common form of homeownership. We'll explore reasons why a homeowner may want to choose a Tenants in Common ownership arrangement, together with details of how Shire Direct can help with these arrangements, and details of our available mortgage help.

Table of Contents:

Tenants in Common explained

So as we talked about in the introduction above, 'Tenants in Common' is a term that refers to one of two ways in which homeownership can be created, the other, and probably more commonly used arrangement is on a Joint Tenancy basis.

For further information and explanations on the implications of these statuses, we recommend you take a look at our pages on Joint Tenants and our article on Joint Tenancy vs Tenants in Common.

When we buy our new home, do we arrange the ownership of the property on a Tenants in Common basis or as a Joint Tenancy?

As ever - it depends!

Firstly, we need to consider how each of the two methods work, so let's take a brief look...

Joint Tenancy

A Joint Tenancy is the arrangement and agreement of two or more people, taking ownership of a property, where all parties to the Mortgage Deed own the entire property (together with any debts attaching to it, such as a mortgage), in joint names. This is the most popular method of property ownership between married couples and partners.

Under a Joint Tenancy agreement, the property cannot have any part of its ownership sold separately. On the death of either owner, the ownership of the property, and any liability that attaches to the property, for example a mortgage, will automatically transfer to the surviving Joint Tenant. For a more detailed look at Joint Tenancy, don't forget to have a look at our Joint Tenants article.

Tenants in Common

Tenants in Common is the alternative method to having the property ownership arranged on a Joint Tenancy basis.

This arrangement is more suitable for couples or a group of owners who require that in the event of their death, that they have their percentage interest in the property diverted to someone else other than their co-owner(s).

Reasons for choosing a Tenants in Common Ownership Arrangement

There are several reasons why owners would be better advised to arrange the property ownership on a Tenants in Common agreement, and these include:

Commercial Property
The property may be owned by a business partnership. In these cases, it is usual for the property ownership to be split into the partnership shares. For example, there may be four partners in the firm, each owning 25% each, or, as is often the case, the four partners may hold differing shareholdings, such as 55%, 20%, 15%, 10%. Whatever the proportions, the property can be vested accordingly.
Second Marriages
Sometimes, on a second marriage, one partner may bring in a much higher proportion of collateral into the partnership than the other, and may wish to protect their interests in the event the new marriage fails! Similarly, there may be a necessity to protect the interests of one or more offspring, and so these arrangements can, to an extent, be accommodated by arranging the property ownership on a tenants in common basis, ensuring each owners share is on death transferred to their Estate for distribution as intended.
Informal Combined Ownership
It's a modern phenomenon that couples or groups may buy a property simply to get onto the housing ladder. These arrangements are usually quite informal, and have no permanency or emotional ties. The arrangement is simply brought about to achieve the common aim of ownership, where as individually they would not be viable because of affordability. So it makes no sense for the arrangement to be devised on a joint tenancy basis, where the survivor would automatically inherit the property - and the debt attaching to it.

Thus for example, a couple arranging a mortgage on an informal basis may decide to split the ownership of their property on a 50:50 basis, each party owning exactly half of the property, but with it, half of any debts registered against it. This means that in the event of one of the owners dying, the Tenants in Common arrangement would mean that the deceased share would pass to their Estate, and would be distributed in accordance with the provision of their Last Will and Testament. The surviving partner would retain only their 50% property ownership and debt.
Inheritance Tax Reasons
Over the last thirty to forty years, house prices have risen several fold, and this has meant that many more properties are being caught in the Inheritance Tax (IHT) trap. The effect here is that more and more families are being pushed way beyond the current Inheritance Tax threshold band at which IHT has to be paid. This is known as the "Nil Rate" band, and is currently levied at £300,000. Properties valued over this amount automatically attract an Inheritance Tax burden of 40% on the remainder of the Estate, which can be very expensive!

Accordingly, many couples in their later years have taken financial advice to sever their Joint Tenancy agreement in favour of a Tenants in Common joint property ownership agreement, and this will allow for the effective use of the Inheritance Tax (IHT) Nil Rate Band on the death of the first party. To do this, each party will leave their 50% share to someone other than their spouse, usually another close family beneficiary, often a child or children. By doing so, on the death of the first partner, up to £120,000 Inheritance Tax (IHT) can be saved, i.e. £300,000 x 40% IHT.

This means that on the death of the second spouse, only their reduced share of 50% of the property would be included in their Estate, against which the "Nil Rate" band can be used again on their death. Remember, the other 50% has already been taken out of the Estate on the death of the first spouse.

Can Shire Direct help with a Tenants in Common arrangement, or provide mortgage assistance?

If your mortgage is currently owned on a Joint Tenancy basis, Shire Direct can arrange for your solicitor to sever the Joint Tenancy and re-vest your property into a Tenants in Common basis, but of course we would ensure and recommend that you receive the appropriate advice from those qualified to provide it.

Please don't hesitate to get in touch to discuss your requirements, naturally without any obligation. Our professionally qualified Mortgage Advisors will carefully discuss your needs, circumstances and aspirations and come up with a mortgage solution to suit you!

Call us free on Freephone 08000 282 281, our lines are open everyday (including the weekends) until 10pm, or alternatively you can enquire online at any time! Our mortgage advisors will be more than happy to talk you through the options open to you and provide you with an in-principle decision, whatever your circumstances!

Hopefully, we've successfully managed to explain the Tenants in Common arrangement and the benefits if your circumstances warrant this type of agreement, as well as the implications it could possibly have on your future. This type of situation can be complex, and so hopefully we've answered at least some of the initial questions you may well have had.

So, that concludes our look at the Tenants in Common form of property ownership. Don't forget there's lots of useful information throughout our website, so why not take some time out to investigate some of the options that could be available to you, and if you feel we can be of help with a Mortgage or Remortgage, then please don't hesitate to contact us - we think you'll be glad you did!

Enquire Online now, or call us today 08000 282 281 - our freephone lines are open 8am-10pm everyday! We'd love to hear from you!

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There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances.
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THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Adding existing debt to your mortgage will increase the repayment term and overall cost.

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