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What Are The Disadvantages Of Tenants In Common?

Tenants in common is one of the ways that many people in the UK choose to buy property together. It’s often perceived to be a better solution than being joint tenants, but it’s not perfect. So, what are the disadvantages of tenants in common?

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Let’s take a look at this popular method of joint property ownership and see why you might or might not want to choose another method:

What is the difference between joint tenants and tenants in common?

“Joint tenants” or “tenants in common” are the two ways that you can own property with another person or other people in most of the UK (Scotland has its own slightly different system).

The easiest way to think about these two very similar-sounding terms is this:

Joint tenants own it all together – this common choice for couples entering a relationship together means you both own the entire property.
Tenants in common own individual shares – this popular choice for couples, partners, and even close friends and family members buying together clearly sets out (usually as percentages) who owns how much of a property.

What are the disadvantages of tenants in common?

There are some situations where owning property as tenants in common makes a lot of sense. This is especially true if the people who want to become owners of a property are not married or tied together in a similarly close way.

However, there are also many reasons why being tenants in common might not be the best choice for you:

1) Joint Tenancy Is Simpler

As tenants in common, you can set out precise percentages and even further details of who owns how much of a property. In some situations, this can be a big advantage.

For example, picture a couple who want to buy a home together but have very different incomes. Perhaps one has a better income but one has large savings. In this instance, as tenants in common, they can decide what is fair between them. If the situation changes, as tenants in common, that couple can also alter the details of their split.

This is all very flexible. But it’s not always very simple. As joint tenants though, you instead own the entire property together. You don’t need to work out what a fair percentage is or change it later on. You both own the property together.

As joint tenants, were the relationship to end before one of you passed away, you still have options. You could sell your share to the other person, have them buy you out, or you might both move out and sell the property to gain 50% of the sale price each.

In summary, for all the precise definition and potentially increased fairness that tenants in common offers property ownership, it also carries a certain weight in terms of complexity.

2) The Will Defines What Happens When A Tenant In Common Dies

One of the advantages of tenants in common is usually held to be that you can decide what happens to your share of the property when you pass away.

You can’t do this as a joint tenant. As a joint tenant, the surviving tenant would inherit full ownership of the property because of something called the “Right of Survivorship”.

That said, the fact that tenants in common can choose what happens to their share of the property by laying it out in their will isn’t always a benefit. It’s easy to picture why this might be.

For instance, imagine a happily married couple who are tenants in common. When one of them passes away unexpectedly, their will says that their share of the property should pass to a child from a previous marriage. This child might be a virtual stranger to the surviving partner.

In circumstances like these, a large potential for family disputes is created by being tenants in common. The solution is usually to draw up your will in consultation with a specialist will solicitor who can talk you through these challenges. You should also make sure your tenants in common do the same.

Changing From Joint Tenants To Tenants In Common

As people’s lives and circumstances change, it’s not uncommon for them to want to change the method through which they own property. Most legal experts will tell you that regularly reviewing the way you hold property – or at the very least thinking about it every now and again – is a very good idea.

As a freshly married couple, becoming joint tenants of a property might feel natural and affirming. Later, situations can change. Changing how you own property to reflect that can offer more protection. However, it’s important to understand the advantages and the disadvantages of becoming tenants in common before you make alterations.

Want To Talk Your Situation Over With An Expert Before You Decide?

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What Happens When One Of The Tenants In Common Dies?

Tenants in common is a popular way for close friends and relatives as well as couples to purchase property. But what happens when one of the tenants in common dies?

Largely, this will come down to what the person who has died set out in their will (making it vital to draw up a will if you do intend to become a tenant in common).

To be connected to a specialist solicitor near to where you live or work, please either call us now on 0845 1391399 or complete a Free Online Enquiry.

Yet there are many related questions about tenants in common – what happens when one dies and, sometimes more importantly, what the still-living tenant chooses to do about it:

Who Inherits My Share Of The Property?

As tenants in common, you will own a strictly defined share of the property in question. This could be a nice round number like 50%. This share can then be left to someone in your will. If the person you own property as tenants in common with is your partner, it could be them.

To make sure this happens, you can create what is known as a lifetime interest or a life interest trust of the property. You can then give your spouse or partner who is the other tenant in common that lifetime interest.

Were you to pass away, they would then be able to continue to live in the house. Technically, they still only own half of the house (or whatever division of it they did before). But thanks to the life interest trust, they can even sell the house (with some limitations) or pass it on to children when they too pass away.

What Happens If Your Tenant In Common Died?

In most of the UK, if your tenant in common has died, the first factor that determines what happens is whether or not they left a will laying out their wishes.

If the deceased did not leave a will, the Laws of Intestacy apply. These are default rules governing who inherits what when a person dies without specifying what should happen to their estate. Under intestacy rules, the surviving tenant in common does not automatically inherit the property.

In Scotland, there is a similar but slightly different situation. The survivorship clause common to joint property ownership in Scotland usually needs to be deliberately “evacuated”.

Otherwise, the surviving tenant in common (although this terminology isn’t actually correct in Scotland) will inherit the full property automatically.

If Someone Else Now Owns The Other Share, What Are My Options?

When you own a property as tenants in common with someone else, you and the other tenant can both choose who will inherit your share of the property were you to pass away. This can lead to situations where the surviving tenant now owns the property with someone they are not as close to.

For example, picture a couple who own property in common. One of them leaves their share to a child from a previous marriage who lives far away and is little known to the surviving partner.

If this sort of situation transpires, you have three basic options:

1) Buy Them Out

One of the simplest solutions is to buy out the new tenant.

Suggesting this can be a welcome solution for the new tenant too. They may already own property they live in or have no desire to move to the area where your property is situated, for example. They may also simply prefer to have funds to do with as they will.

2) Sell The Property And Buy Something With Your Share

Alternatively, both you and the new tenant might decide together that you both want to sell the property.

You might not wish to remain living in a home you once happily shared with someone else. They might have no desire to move in. Selling the property and buying a new one with your share can work well in this case.

3) They Buy You Out

Finally, the new tenant might want to live in the property (or have it available to rent out) while you might have no desire to be involved with it anymore.

In this situation, the new tenant may wish to buy you out. You might even suggest this as an option if you feel it would be the best solution for you. They can, as they say, only say no.
What happens when one of the tenants in common dies?

It’s clear that whether or not the deceased left a will is the deciding factor in what can happen when one of the tenants in common dies. This makes drawing up a will very important. However, if you are the surviving tenant, you have several options as to what you can do. Consult legal advice and think about what feels right before you make your choice.

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Can A Company Buy A House For A Director?

Can a company buy a house for a director?

If you’re investigating whether a company can buy a house for a director, your best recourse will always be to consult a legal professional first.

To be connected to a specialist solicitor near to where you live or work, please either call us now on 0845 1391399 or complete a Free Online Enquiry.

That said, here is a thorough grounding in the basic situation when it comes to companies buying residential property for their directors and employees:

Can A Company Buy A House For A Director?

Yes, a company can buy a house for one of its directors. However, the process of doing so – and, critically, the associated tax implications – are by no means simple or beneficial.

This isn’t an accident. The idea that a director or shareholders in a firm could buy personal property to avoid paying tax is not a new one. This means the law is set up to prevent it and penalise people and companies who do.

The key determinant of whether this will be a beneficial idea or not is often whether the purchase will attract what is called a “Benefit In Kind” (BIK). This is a situation where a director is receiving a benefit from the house, such as:

Living in the accommodation themselves
Having their family or dependents living in the property
Letting any non-qualifying person (anyone with a familial connection to the company) occupy the property

Companies Buying Residential Properties And Tax

The goal of most people who are interested in whether companies can buy a house for one of their directors is the possibility of paying some degree of reduced tax by doing so.

The difference is usually between paying corporation tax (19% at time of writing) or a combination of Income Tax, Capital Gains Tax, and National Insurance Contributions (which can be much more).

The theory often imagined is that because a company is a separate legal identity from its owners, the property will be owned by the company and any rental income will be taxed at the corporate tax rate instead of the often higher Income Tax rate.

Unfortunately for those with this idea in mind, the reality is that this is rarely an advantage to a director living in the property. They are deriving a Benefit In Kind in the form of accommodation. The only exception would be if the director derived no benefit. For example, if the company rented the property to them at a fair market rate.

There are also additional tax rules for companies buying residential properties over £500 000 in value:

1) Stamp Duty Land Tax (SDLT)

If a person with a connection to someone who is part of the company (these are those non-qualifying people mentioned previously) lives in the property in the three years after purchase it will be subject to a special rate of SDLT.
This is charged at 15% of the property price when it is purchased. Even if the person living in the property is intending to pay a fair rent (as established by the local market), this cannot be avoided.

Any company in the UK that’s purchasing residential property is likely to need to pay this higher rate. This remains true even if the company is intending to develop the property and sell it on for a profit.

2) Annual Tax on Enveloped Dwellings (ATED)

SDLT is a barrier for the first three years after a property has been purchased by a company. Annual Tax on Enveloped Dwellings, on the other hand, remains in effect throughout the time that a property is owned. ATED is:

Charged annually and in advance – this tax is levied every year and is paid a year in advance.
Based on property value – this means it runs to several thousand pounds every year.
Penalised harshly if not complied with – the fines for not paying ATED are significant and not to be risked.

How Else Could A Company Buy A House For A Director?

There are some other slightly more indirect options for a director who wants to explore their options when it comes to having their company buy a house for them. These include:

Have the company loan them money – a company can lend money to a director. They can then do as they please with it. This would only attract a BIK if the director was paying less than a fair market rate of interest on the loan. Some companies do have articles of incorporation that prevent this though.
Have the company pay dividends – a company can give the director a dividend payout. The director could then use this to purchase the property.
Carry out a share buy-back – this option has received a great deal of negative press but remains an option for directors who are also shareholders. The company can buy out the director’s shares, giving them funds. However, Capital Gains Tax may be payable.

This is not to say that any of these options are sensible ideas in any particular case or that they will be beneficial – or even legal – depending on individual arrangements. That’s why it’s always vital to seek out expert legal advice whenever you are wondering whether a company can buy a house for a director.

Looking For Just The Right Kind Of Specialist To Advise You On Residential Property Purchases?

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Can You Pull Out Of A House Sale In The UK?

More than 1 in 4 house sales in England and Wales fall through every single year. This can be for a huge number of reasons. But are there consequences? When can you pull out of a house sale in the UK?

In short, even after contracts have been exchanged, it is technically possible to pull out of a house sale or purchase. The financial and legal costs of doing so simply grow the nearer to the actual sale you get.

To be connected to a specialist conveyancing solicitor near to where you live, please either call us now on 0845 1391399 or complete a Free Online Enquiry.

Here is everything you need to know about pulling out of a house sale or purchase in the UK:

When Can You Pull Out Of A House Sale?

You can pull out of a house sale effectively at any stage – right up until the day contracts are due to be exchanged – without any additional penalty.

It is actually still possible to pull out of a sale after contracts have been exchanged. However, the complications and consequences do grow significantly after that point.

(It’s worth noting that laws are slightly different in Scotland. In Scotland, you can only pull out of a house sale before the phase known as the conclusion of missives.)

Can You Pull Out Of A House Sale After The Offer Accepted Phase?

Yes, even after an offer has been accepted, there are no legal consequences of pulling out of a house sale you are involved in.

There can still be financial costs. But these are more in the nature of sunk costs (that is to say, the money you’ve already spent on the process so far) rather than extras added on top.

In general, it has been estimated that sellers can lose an average of £2700-£5000 when a house sale fails.

Can Buyers Pull Out After The Exchange Of Contracts?

Once contracts have been exchanged, a buyer can still pull out. The legal and financial consequences of doing so though are much more severe:

Forfeit deposit – the seller will almost certainly end the contract, meaning the buyer will forfeit their deposit.
Claim for damages and fees – in some cases, sellers have been able to claim for damages against buyers who pull out of a sale after contracts have been exchanged. For example, if house prices go down in the intervening time. Buyers may also have to pay any other costs the seller incurs.
Funds committed – any costs incurred by the buyer so far are also lost. This might include money spent on conveyancing fees, property surveys, mortgage advice, and so on.
Despite this, there may be unforeseen events that suddenly limit a buyer’s ability to make the purchase. Or perhaps new information comes to light regarding the condition of the property.

What Happens If You Pull Out Of A Sale Of A House?

If you pull out of a house sale as the seller, depending on the contract you signed, you will probably have to pay:

Estate agent fees – many estate agents expect to be paid for finding a buyer willing to pay the price you want. If you later decide not to go ahead, as far as they are concerned, they have still done their job and expect to be paid for it.
Conveyancing fees – the same is true of any conveyancing solicitors and other fees associated with the conveyancing process. Even with solicitors who don’t charge you a fee if there is no sale, there may still be the cost of disbursements that can’t be recovered.
Valuation fees – valuing a house before sale tends to cost money and cannot be recovered if you change your mind even for a very important reason.

This makes checking the contract to see what fees you have agreed to pay a vital preliminary step before choosing to walk away from the sale of a house. It’s also important to take stock of the costs you have already paid and how they stack up against the negatives of making the sale.

The party who is not pulling out of the sale can also issue a “Notice to Complete”. This is essentially a ten-day countdown to go through with the sale during which the other party may have to pay interest.

What Can You Do If Your House Buyer Pulls Out Before Exchange?

From a legal standpoint, if you haven’t exchanged contracts, there is not much you can do if your buyer pulls out from a house purchase. In England and Wales, even an acceptance of an offer is not legally binding.

This does depend on the reason why your house buyer pulled out. One of the main reasons house sales fall through – and indeed one of the problems with how house sales in the UK work in general – is that you agree a sale price first and carry out surveys and other due diligence after.

(In Scotland, the law is slightly different. Far fewer house sales fall through in Scotland – in large part, because sellers must have a “home damage report” survey completed before they put their property on the market.)

In cases where due diligence reveals problems, you might be able to address any work the property requires in order to persuade the buyer not to give up on the sale. Or you might agree to a reduction in the asking price to reflect that information.

In general though, the best approach is always to talk with your conveyancing solicitor and any other legal experts involved in the process before you decide whether you can pull out of a house sale or what to do if someone pulls out on yours.

Want To Discuss A House Sale That’s At Risk Of Falling Through With An Expert?

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Can I Sign My House Over To My Daughter In The UK?

Can I sign my house over to my daughter in the UK? Yes, you can sign your house over to your daughter in the UK. Many people gift their home or other property they own to their children. You might want to minimise Inheritance Tax or help get them onto the property ladder.

Yet the process isn’t always easy. There are also alternatives to the most common method of gifting – not to mention potential downsides of signing over your house to your daughter or son in full.

To be connected to a specialist solicitor near to where you live, please either call us now on 0845 1391399 or complete a Free Online Enquiry.

Here is a thorough grounding in the rules surrounding transferring ownership of your house to your children:

Can I Transfer Ownership Of My House To My Daughter In The UK?

In the UK you can indeed transfer ownership of your house to any of your children. The most popular way to do this is by the legal process of “gifting”. There are a few reasons why you might want to do this:

Give them a rung on the property ladder – most young people these days cannot afford to buy property of any kind without some form of assistance from their parents.
Minimise Inheritance Tax – Inheritance Tax applies to assets valued over £325 000 (or £650 000 for couples) and starts at a rate of 40%. Gifting property to your daughter or son is a potential way to minimise this tax. This is because property tends to be the most valuable asset a person owns.

How Does Gifting Property To My Daughter Minimise Inheritance Tax?

Gifting your entire house to your daughter is known as a “Transfer by Way of Deed of Gift”. This can minimise – and in some cases completely eliminate – the amount of Inheritance Tax due.

However, this is not unconditional. If you continue to derive any benefit from the property (the most common example is continuing to live in it), it is likely any mitigation of Inheritance Tax will be either minimal or zero. This means you will normally need to:

Pay rent or not live in the property – you cannot live in the property without paying rent in line with the average local rate. Not paying rent cancels the exemption from Inheritance Tax.
Live for 3-7 years or more – a “gift” takes a certain period to come into effect. Inheritance Tax due only begins to be reduced starting three years after you’ve gifted it. Every year after that up to seven years, the amount due is reduced. This is called “tapered relief”.
Sell it for the going market rate – you also can’t try to sell your house to any of your children at a reduced rate. Or rather, you can. But any minimisation of Inheritance Tax is likely to be offset by the difference in market rate and the price they paid.

The above stipulation that you are no longer the primary householder of a home you’ve gifted is an important one. The rules relating to it are known as GROB (Gift with Reservation of Benefit).

Make no mistake, these rules can be quite complex. If you are planning to do this, it is a very good idea to speak to a specialist solicitor to get legal advice before you proceed.

Can I Sign My House Over To My Daughter And Still Live In It?

Yes. As we’ve seen, many parents like to sign their houses over to their daughter or son and still live in it. Yet, as we’ve also touched on, there are significant limitations governing the way you can do this if you want to derive any benefits.

Plus, if you are doing this to minimise care home fees, your local council may judge you are doing what is called “a deliberate deprivation of assets” and still take the property into account when setting your fee level.

Can I Put My House In My Children’s Name To Avoid Inheritance Tax?

Yes, you can gift your house to your children in order to minimise or avoid Inheritance Tax. However, those regulations regarding the need to live for another seven years to completely negate the need to pay the tax and not derive any benefit from the gift remain in place.

As an alternative to gifting in full, you might want to sign your house over to your daughter by transferring equity or gifting half (so at least half of the value is not subject to Inheritance Tax) and splitting the bills.

Considerations And Risks When Gifting Property To Your Children

As well as those specific rules and regulations, it is important to bear in mind that there are certain considerations and risks of gifting property to your children:

No rights – you are no longer the legal homeowner and no longer have any rights to the property. If you were to have any serious disagreement, they would be allowed to evict you (hopefully this would never happen, but it has been known to).
Subject to settlement – if your child was to be part of a divorce battle, for example, the house might be sold as part of the settlement.
Financial costs – if you are transferring equity, the person receiving the equity might still have to pay Stamp Duty or Capital Gains Tax.

All in all, the complexity of signing your house over to your daughter or son makes consulting a specialist solicitor before you start a vital step in the process.

Need To Find Just The Right Legal Expert To Discuss Signing Your House Over To A Family Member?

Get in touch with us. Solicitors Near Me will locate the ideal friendly, approachable specialist for you to talk through your situation with.

Solicitors Near Me

To be connected to a specialist solicitor near to where you live, please either call us now on 0845 1391399 or complete a Free Online Enquiry.

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