All you need to know about tenants in common

What is tenants in common?

Tenants-in-common is an arrangement which allows two or more people to own a share in a property. With this type of agreement, there are three main things to remember:

• The split in the share does not have to be equal; you can each own different shares in the property 

• The property will not automatically go to the other tenants if you die 

• You can pass on your share of the property on in your will

Who does a tenants-in-common mortgage suit?

A tenants-in-common mortgage could be suitable for a few different types of property owners, including:

• Parents who want to help their children on to the property ladder and protect their investment 

• Buyers who want to invest in a property but don’t have enough money to do it alone 

• Couples who want to buy a property together but want to protect their investment 

• Individuals who have children from a previous relationship and want them to benefit from their estate (provided they have a written Will) 

• Couples who have divorced or separated can also change their ownership from joint tenants to tenants in common so they can leave their share of the property to someone else

Tenants-in-common ownership is also a way to cut inheritance tax. Consult a solicitor about putting your children or beneficiaries as part of a trust so that the property will not be liable to inheritance tax in the usual way. 

It can also help with care home fees, as the government can only means test you for the part of the property that you own.

What are the advantages and disadvantages of a tenants-in-common mortgage?

Before entering into a tenants-in-common agreement to buy a property, it’s worth considering the pros and cons.

Advantages

• Financial independence: Owners can freely sell or mortgage their share without needing consent from other co-owners 

• Flexibility in ownership: Each party can hold a specific percentage of the property depending on financial contributions or personal circumstances 

• Inheritance planning: Individual shares can be left to chosen beneficiaries in a will, providing control over the distribution of assets upon death

Disadvantages

• Potential for disagreements: Owners may have conflicting opinions on property management, maintenance, or selling decisions, leading to disputes 

• Unequal financial responsibility: If one owner contributes more financially, disagreements can arise regarding the distribution of costs and responsibilities 

• Difficulties in selling: Finding a buyer for a specific share of the property can be more challenging than selling the entire property, potentially causing delays in the selling process

What are the alternatives to a tenants-in-common mortgage?

There are alternatives to a tenants-in-common mortgage in the UK, offering different ways of co-owning a property. These include:

• Joint tenancy: With joint tenancy, all co-owners have equal shares and rights to the property. When one owner dies, their share automatically transfers to the surviving owner(s) 

• Sole ownership: A single individual solely owns the property without any co-owners. Sole ownership provides complete control and decision-making authority over the property 

• Trust ownership: Co-owners can establish a trust to hold the property, defining the beneficiaries and their respective shares. It can be useful for inheritance planning, protecting assets, or managing complex ownership arrangements 

• Company ownership: Co-owners can form a company or partnership to hold the property, with ownership shares defined by the company structure. It can be beneficial for investment properties or business purposes.

It's essential to seek legal and financial advice to understand the implications, tax considerations, and suitability of each option based on your specific circumstances and goals.

What is the difference between joint tenants and tenants in common?

Joint tenants or joint tenancy is where two or more people have equal ownership in a property. If one of the joint tenants were to die, ownership would pass to the remaining tenant or tenants – you can’t leave your part of the property to someone else in your Will.

With tenants in common, on the other hand, it’s possible for each tenant to own a different sized share of the property (although they can also split the property equally if they wish to). Ownership does not automatically pass to the remaining tenant if one were to die, so you can pass your share on to someone else in your Will.

In both cases, if one tenant wants to sell up, all tenants must agree. Read on for a full breakdown of the key differences between joint tenants and tenants-in-common.

What to consider before getting a tenants in common mortgage

It’s important to consider all the outcomes before you sign a tenants in common agreement. It’s worth sitting down to discuss:

• What would happen if one of you were unable to pay your share of the mortgage repayment?

• What would happen if one of you wanted to sell their share in a few years?

• How will decisions about the house be made, such as home renovations, bills and who lives there?

• Who would inherit the other tenants’ share of the property if they were to die?

Can I get out of a tenants-in-common mortgage?

Yes, it is possible to get out of a tenants-in-common mortgage and there are a few options available.

1. Sell your share: You can sell your ownership share to another party, either within the existing co-ownership arrangement or to a new buyer 

2. Buy out your co-owners: Your co-owners may agree to sell you their shares, allowing you to be the sole owner of the property

It's important to consult with legal and financial professionals to understand the specific steps and implications of exiting a tenants in common mortgage based on your individual circumstances and any existing agreements.

More on this topic:

• Joint mortgages after separating - what are your rights?

• What is a declaration of trust, and do I need one?

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