Co-Ownership in Property: Key Differences and Legal Considerations
When purchasing a property with two or more individuals, ownership is held under a trust of land, which separates the legal and beneficial ownership of a property. The legal title must always be held by the co-owners as joint tenants, while the beneficial interest can be held in two forms: joint tenancy or tenancy in common.
Each form carries different implications for ownership on death, divorce, or relationship breakdown. It is, therefore, essential to understand these two forms of co-ownership, the rights they confer, and the impact on Stamp Duty Land Tax (SDLT) when buying jointly.
To ensure clarity and avoid disputes, co-owners should also consider a Declaration of Trust, which formally records each party’s beneficial interest and protects their share if the property is sold or circumstances change.
Joint tenancy
Joint tenancy is where the co-owners of the property are all jointly entitled to the property as a whole. Where a property is held under a joint tenancy, the legal title will be held as joint tenants and all owners would be entitled to the beneficial interest of the property as a whole. There are no ‘shares’ in the property. This means that no joint owner would own the property individually. The most significant right to joint tenancy is the right of survivorship. With the right of survivorship, when one of the owners passes away, the ownership of the property would automatically be transferred to the other owner(s) of the property. However, this does mean that joint owners are unable to pass their ownership under a joint tenancy to someone else by their will.
Tenancy in common
Tenancy in common is where the co-owners can own different shares in the property, creating unequal interests to the property. Where is a property is held under a tenancy in common, whilst the legal title will still be held and registered as joint tenants, the beneficial interest in the property may differ depending on how many shares each owner has in the property. This means that each co-owner in a tenancy in common can own different shares in the property. This does not mean the co-owner’s rights to use the property will be limited to their share, they may still share the same interests and rights to the property. This forms a significant difference to joint tenancy. As each co-owner independently owns their share to the property, tenants in common could pass on their beneficial interest in the property to anyone they would like in a will. The right of survivorship does not apply in tenancy in common so the ownership of the property will not go to the other co-owner(s).
Declaration of trust
As a result, having a declaration of trust may be essential for co-owners before purchasing jointly. The declaration of trust will be conclusive as to the beneficial interests of the co-owners in the property. It would explicitly declare the shares of each co-owner. In the event of a sale of a co-owned property, where the owners have declared to be joint tenants, the property will be divided equally between the joint tenants. However, where the owners have declared themselves to be tenants in common, the declaration of trust would explicitly outline the shares each owner has. As a result, the sale proceeds would be divided by the proportion of their share.
Without a declaration of trust, the law would presume co-owners as joint tenants. The court may only be persuaded that co-ownership without a declaration of trust is tenancy in common in exceptional cases.
Changes in co-ownership
It is possible to change from a joint tenancy to a tenancy in common - this is known as severance of joint tenancy. Similarly, it is possible to change from a tenancy in common to joint tenancy.
Stamp Duty Land Tax
There may be different implications with Stamp Duty Land Tax (SDLT) for co-ownership, particularly in relation to the first-time buyer relief. Depending on each of the individual’s SDLT position, the SDLT payable may differ. The factors to which it is determined includes:
- Whether the individuals purchasing are UK residents;
- Whether they are first-time buyers;
- Whether they are replacing main residence;
- Whether they are owning an additional property.
Where all the purchasers in a co-ownership are first-time buyers, the purchasers may claim first time buyer relief if they intend to occupy the property as their main residence and if the purchase price is no more than £500,000.
However, if there are only one purchaser is a first-time buyer and the other purchaser(s) have owned/are owning other property, the first-time buyer relief does not apply. All individuals must be eligible for first-time buyer relief in order for it to apply.
To illustrate where the purchase may attract higher rates of SDLT, if you are married and your partner currently owns another property anywhere in the world, the property you are currently purchasing will be subject to higher rates of SDLT. This is because in the UK, married couples are considered as one entity for the purposes of SDLT. As a result, you would be considered to be buying an additional property and attract higher rates of SDLT.
Conclusion
Consequently, co-ownership may play a role in impacting future estate planning. It is, thus, essential to approach joint ownership with careful consideration and planning to see which form suits you and other co-owners best.
Contact Chan Neill Solicitors for expert guidance on co-ownership, conveyancing issues, and more. Our experienced, multilingual team ensures smooth communication and a stress-free property transaction from start to finish.
Whether you're navigating shared ownership, joint tenancy vs. tenancy in common, or complex stamp duty implications, we’re here to help.
