Tenancy in Common V Joint Tenancy
When you purchase a property with someone else, whether your spouse or partner, friend or business partner, you will be asked by your Solicitor as to how you both wish to register your ownership and title to the property. In Ireland, the two most common types of co-ownership of property are Joint Tenancy or by Tenancies-in-Common.
Before you make your decision, it is important that you understand the nature of each type of title and how you will co-own the property as this can affect your capacity to deal with the property in the future.
JOINT TENANCY
Joint Tenancy is the most common type of co-ownership title. Under a Joint Tenancy the co-owners are effectively the full owners and own equal undivided shares in the property. As joint tenants each of the co-owners have an equal right to possession of the entire property and one co-owner cannot sell, mortgage or otherwise deal with the property without the consent of the other.
MARRIED COUPLES
If a co-owner under a Joint Tenancy dies their interest in the property cannot be passed by their Will but rather their ownership automatically passes to the surviving joint tenants. Unsurprisingly and for this hassle free “survivorship” benefit, most married couples will opt for a Joint Tenancy title to register their ownership.
UNMARRIED COUPLES
Unmarried couples, friends or business partners should be aware of potential tax implications “in life” and “on death” in opting for a Joint Tenancy and accordingly a Tenancy in Common ownership may be better fit for them.
As an unmarried couple, if you decide to opt for Joint Tenancy ownership to your new home and one partner has contributed a significantly larger capital sum towards the purchase of the property, in the eyes of the Revenue Commissioners your partner is effectively “gifting” you a larger part of your property entitlement. Consequentially, the co-owner beneficiary of this “gift” could be liable for Capital Acquisition Tax. Although the property will automatically pass to the surviving unmarried joint tenant, it does not avoid Capital Acquisition Tax rules applicable to gifts and inheritances passing between unmarried couples.
The surviving joint tenant of the property may be liable for Capital Acquisition Tax by virtue of becoming full owner of the property through survivorship.
In certain cases, a Life Insurance Policy can be taken out by all purchasers that will include cover for any future Capital Acquisition Tax liability.
TENANCY IN COMMON
The alternative to Joint Tenancy is to own the property as Tenants-in-Common. As Tenants-in-Common, each owner has a separate interest and owns a specific share of the property.
If one Tenant-in-Common owner dies, their specific share of the property does not pass to the surviving living owner, but rather it will form part of the deceased owner’s estate and it will pass to the beneficiary nominated under the terms of their Will or if they have no Will according to the rules of succession under Intestacy.
The advantage of opting for a Tenancy-in-Common is that that the ownership of the house will reflect the contribution to the purchase price of each registered owner and any benefit-in-kind gift tax concerns do not arise.
Accordingly, it would be the advisable ownership model for friends or business partners purchasing a property together.
In the case of unmarried couples who opt for a Tenancy-in-Common ownership, the clear disadvantage is that, in the event of the death one owner the surviving Tenant-in-Common may be left in a scenario where they only have entitlement to their specific share in the property and may be forced to sell their home to allow the administration of their deceased partner’s estate.
Should unmarried couples decide to opt for a Tenancy-in-Common ownership it would be prudent that mutual Wills are executed by both parties at the time of purchase reflecting that their specific share in the property is to pass to the other in the event of their death.