Difference Between Buying Property as Joint Tenants or Tenants in Common

When you decide to purchase a property with another person, you're faced with a crucial decision regarding the type of ownership you want to establish. There are two primary forms of co-ownership: Joint Tenants and Tenants in Common. Both have distinct features and implications for the rights and responsibilities of co-owners, especially in the event of one owner's death.

1. Joint Tenants

When two or more individuals purchase a property as joint tenants, they equally share ownership of the entire property.

Key Features

Equal Interest: Each joint tenant has an equally owned interest in the property. This means that no individual can claim a specific section of the property.

Right of Survivorship: A standout feature of joint tenancy is the right of survivorship. If one joint tenant dies, their share in the property automatically passes on to the surviving joint tenant(s). This process bypasses probate, allowing for a smoother transition of property rights.

Requires Mutual Consent: One joint tenant cannot unilaterally sell or transfer their interest in the property without the consent of the other joint tenant(s).

Common Uses: Due to the right of survivorship and equal interest features, joint tenancy is a popular choice for spouses and de facto partners. It ensures that in the event of an unexpected death, the surviving partner retains the property without legal complications.

2. Tenants in Common

As tenants in common, individuals own specific, distinct percentages of the property, which might be equal or different.

Key Features

Varied Interest: Tenants in common can own different percentages of the property. For instance, one can own 60% while the other owns 40%.

No Right of Survivorship: Unlike joint tenancy, if a tenant in common dies, their share doesn’t automatically pass to the other tenant(s). Instead, it goes to their beneficiaries as specified in a will (or by the rules of intestacy if no will exists).

Independent Transactions: A tenant in common can sell or transfer their portion of interest in the property to a third party without the consent of the other tenant(s). However, this can introduce a new co-owner into the arrangement.

Common Uses: Given its flexibility, tenants in common is often favoured by business partners or investors. It's also suitable for friends or relatives buying property together, especially when they've contributed different amounts and wish to reflect this in ownership percentages.

Deciding Between the two

The decision between joint tenancy and tenancy in common should be made after careful consideration of your circumstances and long-term goals. It's vital to reflect on your relationship with the co-buyer, the desired flexibility for future transactions, and the inheritance plan. For instance, if ensuring that your share of a property passes directly to a child or another beneficiary upon your death is a priority, tenants in common might be more appropriate.

In conclusion, understanding the implications of these ownership types is essential when co-purchasing a property. Both have their advantages and potential drawbacks. Regardless of the chosen arrangement, it's beneficial to consult with a legal professional to ensure the chosen structure aligns with individual intentions and offers the best protection for all parties involved.

Your decision and it’s tax implications

When co-purchasing a property and deciding between Joint Tenancy and Tenancy in Common, an accountant can offer invaluable advice and assistance when it comes to the tax Implications.

For example, when selling a property, there may be CGT implications. We can help you understand how your type of ownership will affect your CGT liabilities, especially if the property appreciates in value. Additionally, if the property is rented out, the rental income may have tax implications based on the share of ownership.

To talk about this and more, contact us today.