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The easiest way for many people to get a foot on the property ladder is to buy a home with someone else. Whether it be your partner, sibling, parent or friend/s the sharing of the financial button could be a smart way (if not the only way) to become a property owner.
However, buying a property in joint names can be quite the minefield. What happens when it is time to sell the property? What about if one person wants to sell, but the other wants to stay? What are your rights to the property and what would happen if one party fails to uphold their financial obligation? These are just a few of the considerations to make when entering a property transaction with another person.
Joint ownership is when two or more people legally own a property. All the owners will be named on the title deed and it is usual that they will all have contributed financially in some way towards the purchase of the house. This is not to say they will all necessarily live there or be involved in the day to day maintenance of the property.
Joint owners can either have an equal share in the property or each have an unequal stake. Sometimes one or more owners will contribute more than another/others.
In the UK, there are two different types of joint property ownership. You can either be joint tenants, or tenants in common.
Whether you’re joint tenants or tenants in common probably won’t have much impact whilst you’re living in the property. However, it has legal ramifications if you sell, rent out the property – or if one of the owners dies.
If you already jointly own a property you can find out which type of joint owner you are by checking the contract you signed when you purchased the house, the title deeds, or a Trust Deed relating to the property. Your conveyancing solicitor can help you find this out too.
If you are joint tenants all parties involved will own the entire property rather than each having a specific share. If you have bought your home with your spouse or civil partner, you will usually own it on a joint tenancy basis.
If you sell your home, or rent it out, you’ll split the profit evenly. If one owner passes away, their share will automatically pass to the surviving owner(s).
With tenancy in common, rather than owning the entire property together, each party will own a particular share. Shares might be equal but they don’t have to be.One person could own a 70% share in the property, and the other a 30% share for example.
If you sell or rent out a home under tenancy in common, you’ll divide the amount you make based on each owner’s legal share. If one of the owners dies, their share is dealt with according to their will rather than automatically transferring to the surviving owner(s).
As tenants in common, it is likely that you’ll have had a Trust Deed drawn up at the time that you bought the property.
A Trust Deed, also known as a Declaration of Trust, details your rights to the property. It will document who owns which share, the financial responsibilities of each owner (with regards to utility bills, and maintenance costs etc), what should happen if someone wants to sell or rent out their share, along with anything else that could prevent potential disputes in the future.
While it doesn’t necessarily make much difference whilst you own the property, the type of ownership arrangement you have will have a huge impact on your rights when it comes to selling your property.
If you are joint tenants you both/all have to agree to sell before the property can be put on the market. If an agreement is made, you can sell your property as normal and split any profit equally.
If only one person wants to sell, they would have to apply to the court to force the sale. It will be at the court’s discretion whether the sale will go ahead. They will take into account the co-owners personal and financial situations, and any dependents who live in the house.
Tenants in common have to sell at any time that any one of the co-owners wishes to sell the property.
The Declaration of Trust will usually include instructions on how the other owners can buy the sellers share and they’ll have first right of refusal to do so. This means if the other owners don’t want to sell, they’ll get to purchase the share before the property is advertised to other buyers.
If the property is sold, the amount made will be split between the owners depending on the size of their share.
If you have a second home, such as a rental property or a holiday home in England or Wales, joint ownership can be a useful way of reducing the amount of Capital Gains Tax you have to pay if you decide to sell.
In the tax year 2020/2021, the individual Capital Gains Tax allowance was £12,300. If you sell a second home that you own by yourself, you’d pay tax on profits made above this £12,300 allowance.
If the second home is jointly owned, both you and the co-owner can put your annual Capital Gains Tax allowance towards any profits made. A married couple would only have to pay tax on any profits over £24,600.
If you plan to buy a property with other owners there are a few things you can do to improve your own security and make dealing with any potential issues far easier.
The key is planning in advance. Selling, breaking up, or passing away, may be the last things on your mind when buying a property with someone. However, planning for the worst (whilst hoping for the best) will give you extra security should anything change in the future.
Make sure everyone is happy with their rights and obligations before you proceed.
If you’re unsure what will work best for you, seek legal advice from your conveyancer.
Which type of property ownership arrangement you make when you buy a property, it’s possible to change it at any point. So think carefully about what will best suit your needs. A change in type of joint ownership does not have to be done by mutual consent. One joint owner can serve a ‘notice of severance‘ on the other owner, after which a court will decide upon the case based on the specific individual circumstances.
Joint tenancy might work best for you as a married couple. However, tenants in common might be more appropriate if you want to ensure your share in the home is inherited by your children, or you’re sharing a buy-to-let property with business partners.
If you need to take out a mortgage to purchase the property with other parties, be mindful when moving forward with a joint mortgage. If one person has a poor credit score this will impact the rates available to everyone involved. And, you will all be liable for the debt. So, if one of you is unable to pay, the lender is legally allowed to place the burden of repayment on the rest of the owners. Openness, Honesty and trust about your financial situation is key.
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