Tenants in Common or Joint Tenancy?
Increasingly, couples are choosing to own their homes as Tenants in Common. This is because it can guarantee the right individuals (mostly children) benefit in the long term help and may help avoid care home fees. In certain circumstances Tenants in Common may help minimise Inheritance Tax.
The traditional method of owning or purchasing a home is Joint Tenancy but how do you choose which is best for your particular circumstances?
Here we discuss the pros and cons:
As we’ve said, the traditional method of buying or owning a home is Joint Tenancy. This means the property is wholly owned by both partners. Should one partner die the home automatically is 100% owned by the survivor. It’s a bit like having a joint account at the bank. Should one die, the remaining partner becomes the sole account holder.
In days gone by, fewer couples got divorced or bought a home whilst ‘living in sin’. Second marriages with children from past relationships were few and far between. Worrying about the possibility of losing your home to pay care fees didn’t enter into things. Life was altogether less complicated. It made sense to ensure your lifetime partner inherited the family home and afterwards, the children.
But times have changed!
Even if you’re in a secure and long lasting marriage, what would happen to your children’s inheritance if, for example, you died and your partner remarried? Things could get complicated.
What if you’re in a second marriage and you have children from your previous relationship? If you own your home as Joint Tenant with your new partner, can you absolutely trust that your partner will write a will in favour of your kids? Remember, if there’s no will the estate eventually goes to the next of kin, probably his or her children. Not yours!
What if, when you’re old and frail, having lost your partner, you have to move to a care home? Sitting in the lounge with people with no assets having their fees paid for them whilst you are paying from the sale of your home could be pretty galling.
Tenants in Common means that each partner owns a specific percentage of the property. Normally it would be a 50/50 split but can be any other proportion. For example, where one partner puts in (say) 25% and the other 75%, after a break up, each partner would receive their original proportion on the sale of the home. Following the death of one partner, beneficiaries inherit their specific share.
So you can see, with Tenants in Common the deceased’s partner does not automatically pass to the surviving partner. This means you may have the opportunity to gift your half of the home to your children but allow your partner to live in the property for their lifetime.
The appropriate method of guaranteeing your children will inherit is by means of a will. A will should be drawn up by both partners using special trust wording that provides the guarantee your wishes will be met after you’ve gone.
What about care fees? An old and frail surviving partner who needs to move into a care home can rest more easily knowing the sale of their property may not necessarily be sold to pay the fees, should they be Tenants in Common. This is because they only own a proportion of their home. The other half is owned by the beneficiaries of the deceased who will inherit after the survivor dies.
Owning your home as Tenants in Common can be helpful when planning to minimise Inheritance Tax but only in limited circumstances. This is a subject we shall be covering in detail in another blog.
Changing the way you own your home is reasonably straightforward. You could contact the Land Registry for advice. Alternatively, should you need to write a will, most good advisers would do it for you for a fee of a few pounds.
So which is better? Joint Tenants or Tenants in Common? Well, it depends on your circumstances. But think carefully before you decide.