We sort your Self Assessment for you. £119, all in.

Fast, effortless and 100% online.

We sort your Self Assessment for you. £119, all in.

Joint tenants vs tenants in common – what does it mean for tax?

We've updated this guide on 28th September 2021

What are the pros and cons of being joint tenants vs tenants in common? The right choice is dependent on a variety of factors, such as your financial situation and the relationship you have with the other person you’re buying with. So if you’re thinking of buying a house with someone, figuring out how you should both own that property can be a big decision to make. 

Being either joint tenants or tenants in common brings a load of different benefits and advantages. And the way in which you split your ownership of a property can have big tax implications on your will and estate too! So it’s important to make sure you take some time to consider which option is best for you both.

What’s the difference between joint tenants vs tenants in common?

Both joint tenants and tenants in common offer different advantages and drawbacks to property buyers. Unsure which type of joint ownership suits you? It depends on your individual circumstances and needs. We’ve outlined the differences between the two below.

Remember that the type of ownership you pick will affect what you can do with the property. This is if either one of you dies or if your relationship breaks down.

Joint tenants

In a joint tenancy, each buyer has ownership of the complete property, regardless of whether one owner has contributed more money than the other.

 If one owner passes away, the ownership of the property automatically goes to the remaining joint tenant. This is also known as the ‘right of survivorship.’ Because of this, joint tenants cannot pass on their ownership of a property to relatives or loved ones in their will.

Purchasing a property this way is popular with buyers who are either relatives or in a committed relationship. It’s advantageous to them as it simplifies beneficial ownership and can sometimes reduce the cost of legal fees. 

What happens if your relationship breaks down?

During a divorce, the distribution of your assets – including the property – is treated differently. However, if you hold the property as joint tenants, this would still be split into equal amounts, regardless of if one buyer contributed more towards the initial purchase.

Tenants in common

Tenants in common differ from joint tenants, as each buyer owns a separate share of the property. Plus these shares don’t need to be equal in size. For example, you might own 80%, whilst your friend only owns 20%. 

If you’re thinking of opting for a tenancy in common, remember that:

  • You both will own different shares of the property
  • The property does not automatically go to the other owner(s) if you die
  • You can pass on your share of the property in your will

This type of joint property ownership is a sensible choice if you’re thinking about buying a property for investment purposes, or if you’re buying with someone who you’re not in a close relationship with.

What about tax?

There are some tax implications when it comes to joint tenants vs tenants in common. The passing on or selling of a property in a joint ownership can be subject to both Inheritance Tax (IHT) and Capital Gains Tax (CGT).

Inheritance tax

IHT is a type of tax that’s collected from your estate when you 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 this, it’ll be charged at the standard Inheritance Tax rate of 40%.

With both tenants in common and joint tenants, if your share of a property goes to your spouse or civil partner when you die, no IHT is owed. But, if you’re not married to or in a civil partnership with whoever inherits the property, things get complicated.

Assuming the property is only owned by two people, if you are:

  1. Joint tenants: then half of the value of the property will be added to the overall value of your estate. This could easily go over the £325,000 threshold, meaning inheritance tax would need to be paid.
  2. Tenants in common: then the value of your share of the property will be added to the total value of your estate. In this case, it’s likely that your share of the property could fall under the IHT threshold. This means your designated beneficiary will have no tax to pay!

Capital gains tax

When you sell your property for a profit, you could be required to pay Capital Gains Tax, even if you’re in joint ownership. This usually depends on your total taxable income for the year and how big your profit was from selling the property.

Whether you’re tenants in common or joint tenants, you’ll each benefit from the £12,300 Capital Gains allowance. If you want to know how much CGT you’ll pay, you can simply use this handy calculator below:

Where did you get profits?
Profits from capital gains
£
Annual income
£
Outside of capital gains
Select tax year
Profits after tax
£18,560
CGT
£1,440
Profits from selling shares
£20,000
Capital Gains Tax (CGT)
£1,440

First £12,300 are tax-free.

£1,000 taxed at 10%: £100

£6,700 taxed at 20%: £1,340

Your profits after tax
£18,560

Hey there! We really hope this calculator helped you. Tax matters can be a dreadful topic at times. We know. That’s why we started TaxScouts.
A stress-free way to getting your taxes done.

Have a minute? See how it works

How your capital gains tax is calculated

Your total capital gains tax (CGT) owed depends on two main components:

  1. How much you earn in total
  2. What type of assets you sell

Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.

In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:

Capital gains tax (CGT) breakdown

You pay no CGT on the first £12,300 that you make

You pay £100 at 10% tax rate for the next £1,000 of your capital gains

You pay £1,340 at 20% tax rate on the remaining £6,700 of your capital gains

Want regular tips from us?

Sign up for important updates, deadline reminders and basic tax hacks sent straight to your inbox.

Category

We sort your Self Assessment for you. £119, all in.

Fast, effortless and done for you online – the way tax returns should be done. Free to sign up.