Any negatives for Tenants in Common?

KatieDee

As the title says, are there any pitfalls or negatives to owning a property as Tenants in Common, as opposed to Joint Tenants?

My partner and I are due to purchase a house and I am putting down the majority deposit. This should mean ownership is around 60/40. I want to protect my deposit in the event that things go wrong, but understand that Tenants in Common will ideally need to backed up with a will, should anything happen to either of us.

We plan to marry in the near future and hopefully have children, however, I've seen what failing to protect yourself financially can do, so I just want to do things right! As we get closer to exchange, our solicitor is asking what our preference is.

So, apart from requiring a will to ensure your percentage of the property is left to the other person, are there any other shortfalls to tenants in common?

Also, is there a better method of doing it? I understand there are two main options - either you protect your deposit and then split anything remaining after the mortgage and your deposit 50/50, or you split the proceeds 60/40 (or to reflect your original percentage ownership). Does either one hold any greater risks?

Finally, is there anyway of being Joint Tenants, but still protecting your share in the event of a relationship breakdown? Does a Deed of Trust require you to be Tenants in Common?

Thanks in advance

SeaVixen

Hi Katie,

Thanks for asking this question - I'm in a similar situation, and as a FTB I'm probably not the best person to answer your question re: pitfalls of this (will be following this thread myself for education purposes). However, I'll just let you know what we're doing in case it's useful:

The entirety of our deposit is mine. We've had a deed of trust drawn up which puts us both as tenants in unequal shares. Should we sell the house, the value of my deposit goes back to me, and then any remaining funds are split 50/50.

However, we both have a desire to eventually own the house equally. There is a clause within the trust that states my partner can transfer money from an account in his sole name to an account in my sole name (with the house address as the reference), and this is effectively him paying me back incrementally for the deposit.

The trust references this system, and money that he has 'paid' me will be taken into consideration at the point of house sale.

I'll be paying the money he transfers to me into the mortgage so that we overpay the mortgage and become debt free sooner, but going through bank accounts that way gives us both a tamper proof way of proving how much he's paid.

This was the only way we could conceive of being able to change the % ownership without paying a solicitor every year to redraw the trust. I'm aware that my £60k deposit invested in the property will not increase in the way that it would if we just unequally split the ownership and sold the house at a higher value. However, it's also protected at £60k in the (albeit unlikely) event of the property value going down.
Also, after a bit of soul searching, it was more important to me that my partner have the ability to pay me back

We still need to get wills drawn up, as you point out. I believe that should we ever get married, the marriage will effectively overwrite the deed of trust, so we'll also need a prenup to keep it in place.

Hope a shared experience helps a little!
I'll be keeping an eye on this thread for any more experienced people sharing knowledge

SmashedAvacado

as joint tenants, if you die the property goes to the other owner without forming part of the estate. As you both own the whole. As tenants in common, that doesnt happen. it goes with the will - and if you have no will, if you have a large estate, it might not all go to the other person. it almost certainly wont if you are not married without a will

in a breakdown, joint tenants can be severed to 50/50 on notice. So that works if you are contributing equally - or intend that you will own equally - less good if there are uneven contributions.

KatieDee

SeaVixen wrote: »

Hi Katie,

Thanks for asking this question - I'm in a similar situation, and as a FTB I'm probably not the best person to answer your question re: pitfalls of this (will be following this thread myself for education purposes). However, I'll just let you know what we're doing in case it's useful:

The entirety of our deposit is mine. We've had a deed of trust drawn up which puts us both as tenants in unequal shares. Should we sell the house, the value of my deposit goes back to me, and then any remaining funds are split 50/50.

However, we both have a desire to eventually own the house equally. There is a clause within the trust that states my partner can transfer money from an account in his sole name to an account in my sole name (with the house address as the reference), and this is effectively him paying me back incrementally for the deposit.

The trust references this system, and money that he has 'paid' me will be taken into consideration at the point of house sale.

I'll be paying the money he transfers to me into the mortgage so that we overpay the mortgage and become debt free sooner, but going through bank accounts that way gives us both a tamper proof way of proving how much he's paid.

This was the only way we could conceive of being able to change the % ownership without paying a solicitor every year to redraw the trust. I'm aware that my £60k deposit invested in the property will not increase in the way that it would if we just unequally split the ownership and sold the house at a higher value. However, it's also protected at £60k in the (albeit unlikely) event of the property value going down.
Also, after a bit of soul searching, it was more important to me that my partner have the ability to pay me back

We still need to get wills drawn up, as you point out. I believe that should we ever get married, the marriage will effectively overwrite the deed of trust, so we'll also need a prenup to keep it in place.

Hope a shared experience helps a little!
I'll be keeping an eye on this thread for any more experienced people sharing knowledge

Thank you so much for your response. It is definitely a bit of a minefield - I've been trying to understand the process since we first agreed to buy a house together, but I'm still none the wiser!

Our situation sounds identical and like you, I only wish to protect my deposit in the event that we end our relationship and sell the house. I am happy for any profit from a potential sale (once my deposit has been returned) to be split 50/50, and feel like this is the most fair way of doing it.

As we're planning on marrying in the next year or so, I did consider whether it was worth being Tenants in Common and having a deed of trust written. Likewise, we're hoping to start trying for a family shortly after, which is likely to affect everything even more!

I know you can't exactly plan for life and all the above is hypothetical. I just want to make sure everybody is protected without causing more work and hassle in the long run (especially if marriage/children/etc can override it!).

SeaVixen

SmashedAvacado wrote: »

as joint tenants, if you die the property goes to the other owner without forming part of the estate. As you both own the whole. As tenants in common, that doesnt happen. it goes with the will

Thanks SmashedAvocado
This has made me realise that it will contribute towards the inheritance tax limit. Granted, that even with the deposit plus 50% of the rest of the house, my estate is a long way off the £325k tax free threshold.
But this has made me think it will be important for my partner to have hit 50% of the deposit, and we transfer to joint tenants before either of us get very rich and die.

SmashedAvacado

SeaVixen wrote: »

Thanks SmashedAvocado
This has made me realise that it will contribute towards the inheritance tax limit. Granted, that even with the deposit plus 50% of the rest of the house, my estate is a long way off the £325k tax free threshold.
But this has made me think it will be important for my partner to have hit 50% of the deposit, and we transfer to joint tenants before either of us get very rich and die.

actually if you get very rich (not just medium rich) it might be best to be joint tenants as otherwise those inheriting from you pay the IHT when the second person dies as opposed to being able to use the first person's allowance when they die (and passing that estate to a child) (you're so rich you have multiple places to live) and then when the second person dies you have less of an estate to be subject to IHT. )

Tom99

SmashedAvacado wrote: »

actually if you get very rich (not just medium rich) it might be best to be joint tenants as otherwise those inheriting from you pay the IHT when the second person dies as opposed to being able to use the first person's allowance when they die (and passing that estate to a child) (you're so rich you have multiple places to live) and then when the second person dies you have less of an estate to be subject to IHT. )

Only if you are married. If you are not married the estate of the 1st to die would be subject to IHT whether you held the property as joint tenants or tenant in common, it would make no difference.
If you are married then the 1st person's nil rate band can be passed to the survivor again it makes no difference whether you hold as joint tenants or tenants in common.

foxy-stoat

It sounds like your trying to protect "your extra" 10% of the property value.......if that is the biggest concern then I would not put too much effort into trying to iron-clad protect that. If the percentage was miles greater then its a good idea.

ruthlessness

I do not understand how this sort of trust deed works in practice
the property is owned as Tenant in common in unequal shares but unclear what impact these unequal shares have
if the proceeds of sale are used to pay off the deposit first and then are split 50/50

Any increase in value is divided equally - any decrease up to the amount of the deposit falls solely on the person putting up the deposit

It seems the non-deposit paying partner has nothing to gain from contributing to the deposit after purchase?

Tom99

ruthlessness wrote: »

I do not understand how this sort of trust deed works in practice
the property is owned as Tenant in common in unequal shares but unclear what impact these unequal shares have
if the proceeds of sale are used to pay off the deposit first and then are split 50/50

Any increase in value is divided equally - any decrease up to the amount of the deposit falls solely on the person putting up the deposit

It seems the non-deposit paying partner has nothing to gain from contributing to the deposit after purchase?

[FONT=Verdana, sans-serif]If say party A is paying the whole of a 20% deposit then a fair deed of trust would say that on the sale of the property party A will get 20% of the sale proceeds less costs of sale but before redeeming the mortgage, and the remaining balance is split 50/50.[/FONT]
[FONT=Verdana, sans-serif]That way the person providing the 20% deposit gets the upside if the property increases in value.[/FONT]
[FONT=Verdana, sans-serif]However if the property falls in value, you are right that the whole burden of the drop in price is paid by person A.[/FONT]
[FONT=Verdana, sans-serif]It would presumably be possible to anticipate that situation by making party B liable to stump up a part of the loss but that would probably have to be some sort of loan agreement which could still be in place after the sale because there would be no guarantee that party B would have spare cash at the time of sale.[/FONT]

ruthlessness

yes that would be a "fair" deed of trust - is this what is being suggested by solicitors?