Q. I am about to buy a property with my partner and am wondering whether it’s best to buy as Joint Tenants or Tenants in Common especially when it comes to things like Inheritance Tax – can you advise?
A. If you are buying a property with someone else whether it’s a partner, friend or family member you need to consider how best to legally structure the ownership of the property. Joint Tenants both own 100% of the property and when one partner, the other automatically becomes the sole owner of the property. Tenants in common both own shares of the property, which can be equal or unequal. When one partner dies their share transfers automatically to their beneficiary as specified in their will. Tenants in common is perhaps more convenient for unmarried couples, parents and children, brothers and sisters. When it comes to Inheritance Tax married couples and civil partners are able to pass their personal IHT thresholds to their spouse upon death meaning that the surviving partner can bequeath assets worth up to £650,000 tax free. For those not married, tenants in common is beneficial if their share is less than £325,000 as they will avoid IHT when their share passes to a beneficiary. If they are unmarried and joint tenants then when the property is passed on to their beneficiary, they will need to pay IHT if the whole property is valued at more than £325,000. If the owner has debts then the advantages of Tenants in Common go even further. If for example your spouse has outstanding debts upon their death, these will need to be paid out of their estate before assets can be passed onto any beneficiaries stated in their will. If you own your property as joint tenants, your partners share will be passed automatically to you on their death. This means that their half now becomes part of your estate and creditors can apply for an ‘insolvency Administration Order’ within five years of the death, which can force a sale of your home in order to pay the outstanding debts. If they are tenants in common, then it is far easier to pay outstanding debts through the deceased’s separate share, rather than as joint tenants, where upon their death the remaining owner will own the entire property which may force a sale. So my advice is to consider carefully before purchasing a property exactly how it will be owned, this will save a lot of time, money and possible distress in the future if circumstances were to change.