There are several ways to own a property in the United Kingdom.
These include shared ownership models, of which joint tenancies are one of the most common.
But what happens when a joint tenancy arrangement no longer works for you? Is it possible to sever a joint tenancy and change how you own your house?
Read on to find the answers to all of these questions and more.
What is joint tenancy?
A joint tenancy means that everyone involved jointly owns the entire house.
It is often an agreement between two people but sometimes done with more. These people can be a couple, family, or even friends buying property together.
Joint tenancies vs tenants in common
Join tenancies and tenants in common are the two most common ways to co-own properties.
There are some crucial differences.
Unlike a tenants in common arrangement, no shares are involved in joint tenancies. So, when you sell the house under a joint tenancy, all the money is split equally.
This has implications in the event of one owner passing away.
If a tenant in common owner passes away, their share of the house automatically transfers to the survivors. You can’t pass on a joint tenancy property in a Will.
What is severing joint tenancy?
‘Severing’ joint tenancy means that you dissolve this agreement.
This often means changing to a tenants in common ownership structure, involves each party having a specific share in the house.
This share can be passed on in a Will. It can also be traded, meaning that someone can increase or decrease their share in the property over time as long as the others agree.
How to sever a joint tenancy
You usually sever joint tenancy by creating a statutory written notice. This states your official intention to sever the arrangement.
In an ideal world, all parties would sign this, which would then be submitted to an appropriate Land Registry office.
It’s technically possible to sever joint tenancy without the agreement of the other parties. You’ll need to follow the correct procedures, which a solicitor can advise on.
(Remember to inform your mortgage lender when you end a joint tenancy. They’ll need this information.)
Pros of severing joint tenancy
Divorce
Severing joint tenancy is extremely common when couples divorce. One person may want to move out, but the other doesn’t wish to sell the house.
Severing joint tenancy allows shares to be transferred, so everyone gets their way.
Estate planning
Estate planning is the second major reason. A tenancy in common allows you to pass your share onto a loved one when you pass away, which could become a greater consideration as you age.
It increases flexibility for all parties involved. This is useful if one of you enters a new relationship or wishes to live with another family member.
The ability to transfer shares and increase/decrease your share in the house is extremely useful when circumstances change.
Tax advantages
In some cases, severing joint tenancy can have tax advantages. This especially applies if you’re planning to rent out your house.
Separating your share structure so that one person owns more than another means that each individual will pay different tax levels. You could leverage this to your advantage.
Avoiding care home fees
Many experts suggest severing joint tenancy protects your assets from care home fees.
Cons of severing joint tenancy
Losing inheritance mechanism
Your co-owner will no longer automatically inherit your portion of the property when you pass away.
You’ll need to write a Will assigning it to them, if that’s your wish. Otherwise, the laws of intestate will kick in.
Living with unknown people
Once joint tenancy has been severed, your co-habitant can transfer their shares to someone else and move out if they wish.
This will mean that you’re living with someone you potentially don’t know or like.
Legal fees
Applying to sever a joint tenancy will incur legal fees, as your solicitor will charge for this service.
You should also speak to a tax adviser to consider how capital gains tax, stamp duty, and perhaps pre-owned asset tax affect you.
Can I sever joint tenancy without a solicitor?
While this is technically possible, most experts don’t recommend it. It’s a crucial step you can’t afford to make mistakes with.
Unless you have experience in this area or are a qualified solicitor, it’s best to let an expert help you.