What is Joint Tenancy?
Where property is owned by more than one person, there are two ways in which it can be held in England and Wales. The first is known as joint tenants and the second as tenants in common.
To own as joint tenants means that you own the property jointly, with the consequences that neither party can transfer his or her interest in the property outright to a third party during their lifetimes or by Will, and upon the death of either of them, the survivor owns the property outright and title will be transferred into his or her sole name, regardless of the terms of any Will.
To own as tenants in common means that each joint owner of the property has a separate share in it with the result that any party can transfer their respective share in the property to a third party, either by sale or gift during his or her lifetime, or by Will on death. On death the deceased’s interest in the property does not automatically pass to the survivor as in the case of a joint tenancy, but will pass according to his or her Will or the rules of intestacy if there is no Will.
Severance of a Joint Tenancy
It is common for property to be held as joint tenants, particularly by married couples, and unmarried couples in an established relationship. Property is usually held as tenants in common if there are tax considerations; if cohabitees have contributed differing proportions to the purchase price and wish to reflect this in the event of a resale; or if the owners of the property are in business together.
However, there may be reasons to change a joint tenancy to tenants in common to ensure that a share in the property goes to someone other than a spouse or partner, for example a breakdown in relationship between the owners of the property; mitigating Inheritance tax; or sheltering part of the property from a means-tested assessment should one of the owners of the property be admitted permanently into residential care.
The aim of this Factsheet is to outline the procedure involved in changing a joint tenancy to tenants in common, and it is assumed that you have already received advice prior to making this decision. Further information on joint ownership can also be obtained from our Factsheet Joint Ownership of Property.
Procedure in changing a joint tenancy to tenants in common
It is possible to change a joint tenancy to tenants in common by a simple procedure known as ‘severance of joint tenancy’.
This can be done:
- without the co-operation of one of the joint owners, for example in matrimonial difficulties, in which case the property will be deemed to be held in equal shares, or
- by agreement. If, after severing the joint tenancy, the property is not to be held in equal shares, a Declaration of Trust should be prepared setting out the parties’ interests in the property and ongoing obligations.
When the notice of severance has been completed, if your title to the property is registered, a restriction will be entered on your title at the Land Registry. The Land registry will not normally require a fee and no Stamp Duty Land Tax is payable. If your! tile is not registered, it will be necessary to endorse a memorandum of severance on the title deed transferring the property to you.
Matters to consider before severing the joint tenancy
After severing the joint tenancy, if you were to die first, the other joint owner will no longer inherit your share of the property. If you sever the joint tenancy and matrimonial proceedings are started now or in the future, the severance will have no effect on the outcome of the matrimonial proceedings. If you are severing the joint tenancy as part of a tax planning exercise consideration should be given to:
- Securing your future residential, as well as financial, security.
- Catering for future changes in circumstances, for example, entering into residential care or wanting to move house
- The interaction with other taxes such as capital gains tax, stamp duty land tax, and pre-owned assets tax.
- On the death of one of the owners of the property it may be necessary to take out a grant of probate or letters of administration to the deceased’s estate.
If you have a lifetime (equity release) mortgage, some lenders will not permit the borrowers to hold the property as tenants in common. It is possible to convert a tenancy in common back into a joint tenancy which would involve all the owners entering into a Declaration of Trust.
Matters to consider after severing the joint tenancy
It is important that when you have severed your joint tenancy you make a Will so that provision is made for your share in the property to be left to the person or persons you nominate rather than the other joint owner. You should also seek further advice on the possibilities of reducing the impact of Inheritance Tax on your estate.
If the property is to be held as tenants in common in unequal shares we recommend that you consider making a Declaration of Trust setting out the owners shares in the property, and if necessary, the obligations to contribute towards outgoings and what is to happen if one of the parties wishes to leave the property
There is a possibility that one of the owners of the property might become incapacitated following an accident or illness. If a Lasting Power of Attorney has not been made beforehand, there may be no alternative other than to apply to the Court of Protection under the Mental Capacity Act 2005 for the appointment of a deputy (formerly known as a receiver). This can be cumbersome and expensive. We recommend that you protect your position by making a Lasting Power of Attorney to cover such an eventuality.
What action is required at this stage?
To proceed with changing the joint tenancy to tenants in common you should contact The Will Consultancy L TD to arrange an appointment or request a Severance of Joint Tenancy Questionnaire (Form JOP1) to complete and return to assist in preparing the required documents.
- Joint Ownership of Property. Making a Will
- Lasting Powers of Attorney
Further Information and Contacts
This Fact sheet has been prepared to highlight some key issues relating to the severance of the joint tenancy of your property, and in particular to assist you in understanding the procedure and the work we will be undertaking on your behalf. It is intended to be for general guidance only and is not suitable for specific advice. The information in this Fact sheet is based upon our understanding of the legal position as at December 2007 and may be affected by subsequent changes in the law.
Should you require any specific legal advice on the issues covered, or any documents sent to you in connection with the severance of the joint tenancy, please contact Wendy Maher on 01443 485147 or e-mail email@example.com and she or another member of the Private Client Team will be pleased to assist.