Whether you are married or living together, most people give very little thought to how they hold property when they buy a property together. Most conveyancing lawyers make efforts to try and explain the different options. Either they don’t do it too well or people just don’t question the advice they are given.
But this stuff is important. If not done well, it can cause huge problems on divorce or separation and eventually, on death. And it can be a very costly exercise.
As joint owners of property, you can either hold the property as joint tenants or tenants in common. If you are joint tenants, it means that when the first owner dies, that person’s share will automatically transfer to the other. The deceased’s share does not even form part of their estate for the purposes of inheritance tax. Most married people or civil partners hold property as joint tenants.
If you hold the property as tenants in common, your share will be distributed in accordance with your Will. If there is no Will, then the intestacy rules apply. The share does not automatically pass to the other owner. This type of ownership is popular with friends who live together.
The most common mistake occurs when a property is purchased jointly by two people who are not married or civil partners. Often, one person pays more towards the deposit than the other. However, this is not always reflected in the way they hold the property. For example, if they hold the property as joint tenants, no credit is given to the person who pays the larger deposit. Even if they hold the property as tenants in common, it will be assumed they have a 50/50 share. This is regardless of the level of contributions.
You can do something about this. If you are buying a property together for the first time and are making different contributions towards the purchase price, speak to your solicitor. Think about having a trust deed and make sure the transfer deed reflects the different shares you each have. If you stay together for a long time afterwards or get married (or form a civil partnership), then the issue becomes less important. But, if you do not do it in the first place, there will always be an assumption that the property is held 50/50.
If you want to hold the property as joint tenants, make sure you understand the provisions. On your death, your share will automatically go the other owner.
If you hold the property as tenants in common, make sure the shares you each hold reflect what you want. You must also make sure you have a valid Will which deals with the distribution of your share. Almost every lawyer will give you information about the way you hold the property. Sadly, very few people really pay attention during what is often a very stressful process. What happens if you do not deal with this issue carefully from the beginning? In short, it could lead to lengthy litigation and huge legal fees. Take a few minutes to think about it.
I have seen situations that would make your toes curl. In the throes of love, a man pays about 80% of the huge deposit. When he and his partner buy the property, the transfer deed says nothing about this. It does say they hold the property as tenants in common. They live together and very quickly fall out with each other. The man assumes that since they have been together for less than a year, he will receive back his 80% towards the deposit. No! There was no document drawn up to say he should receive back what he had paid. In addition, the transfer deed was silent about shares in the property. When the property was eventually sold, the woman received a 50% share in the property, having made a 20% contribution towards the deposit and having made no mortgage repayments. The loss to the man – £100,000. Ouch!!
If you would like to discuss his issue further, please contact me, Venisha Shah, on 020 3150 2525.