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Tenancy in common is a type of joint property ownership. It can be used when you either buy or inherit a property with someone else.
If you buy a property for investment purposes, or if you don’t have a close relationship with the person you’re buying with, then opting for a tenancy in common is a sensible choice.
Tenants in common each own a separate share of the property, and they don’t have to be equal in size. For example, you might own 75%, whilst your friend only owns 25%. You can also pass on your share of the property to your child or family members in your will. This is because the property doesn’t automatically go to the other owner if you pass away.
Tenants in common and joint tenants are two very different types of ownership. But the main differences between them affect what you can do with the property.
For example, if one owner dies, or the relationship between the owners breaks down, each can sell or pass on their share of the property to someone else.
Joint tenants are different from tenants in common because:
Inheritance tax (IHT) is a type of tax that is collected from a person’s estate when they die. There’s usually nothing to pay if the value of the estate is below the IHT nil rate allowance of £325,000. If your property value is over, it’ll be charged at the standard Inheritance Tax rate of 40%.
If the deceased owner’s estate doesn’t have enough money to pay any Inheritance tax due, the tenants in common are liable to pay. But you can still benefit from being tenants in common if the value of your property is less than the IHT threshold.
The property shares belonging to the first owner to die can be passed straight down to their children (or any designated beneficiary). In this case, no tax will be due. When the next owner dies, their half might also be below the threshold. This means that their children won’t have to pay IHT either.