You just bid on a house together with your spouse. Should you buy the house as joint tenants or tenants in common? Doesn’t really seem to matter. But it does. Because the two are fundamentally different concepts.
Joint Tenants or Tenants in Common
Whether you buy the house as joint tenants or tenants in common matters when one of you wants to sell, gets sued or dies and the other doesn’t.
Contract
Whenever you deal with property with somebody else, the contract must state whether you hold the property as joint tenants or tenants in common. And if you hold it as tenants in common, the contract must also state the share of each person.
Joint Tenants
As joint tenants you own 100% of the house together – the emphasis is on together. You don’t own 50%. You own 100% but together with your spouse. So you can’t go and sell half of the house and neither can your spouse. You can only sell it together.
But there is another important point of difference. Joint tenants possess a right of survivorship. So when you die, your interest in the house goes directly to your spouse as the other joint owner. It doesn’t become part of your estate.
A right of survivorship means that your interest passes to the surviving joint tenant(s) when you die. As a joint tenant you don’t have an interest in the land that can be passed to another through your will. The land will only go into your estate if you are the last surviving joint tenant.
To create a joint tenancy you must have unity of time, title, interest and possession. To have unity of time all joint owners must acquire their interest in the property at the same time. For a unity of title all joint owners must acquire their interest from the same transaction. You have a unity of interest when all joint owners’ interests are identical in nature, extent, and duration. And you have a unity of possession when each joint owner has an equal right to possession of each part and to the whole of the property, but not a right to exclusive possession of any part.
Most couples buy their family home as joint tenants.
Tenancy in Common
As tenants in common, each of you owns a share of the house. Let’s say you agreed on 50/50. So at first sight it looks exactly the same like a joint tenancy but it isn’t. Because now you own 50% alone. And can sell this 50% alone without your spouse’s consent.
As tenants in common you don’t possess a right of survivorship. So on your death your interest is part of your estate and passes according to the terms of your will.
If you die intestate (without a will) as a tenant in common, your estate is distributed according to the Wills, Probate and Administration Act 1898.
A tenant in common holds an undivided share in the property and has unity of possession. This means that each co-tenant has an equal right to possession of the whole of the property, but not a right to exclusive possession of any part. A tenant in common may deal with their respective share as they wish and this will not affect the tenancy of the other co-tenants.
It is not necessary for tenants in common to have a unity of interest, they can therefore hold unequal shares. For this reason the shares of tenants in common must always be shown. Shares may be shown as fractions, eg 2/5 and 3/5 or by decimal point, eg 0.75 and 0.25 or as percentages, eg 60% and 40%.
But either way the fractions and decimal points must always add up to 1. The percentages must add up to 100. The fractions must have a common denominator, eg 3/6, 2/6 and 1/6 not 1/2, 1/3 and 1/6.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 23 March 2020
