What Does a Severance Of Tenancy Mean?
Moving from joint tenancy (or tenants) to tenants-in-common is normally by agreement (or declaration). Which is called a severance of tenancy. We can help prepare all the papers and indicate how to sign them. The split is normally into equal shares but it can be in unequal shares though a trust deed which is an extra cost unfortunately due to a quirk in the law. This is one thing we recommend that all of our clients get in place as the first layer of asset protection.
Types of Home Ownership
Joint Tenants
Traditionally solicitors have set up home ownership so that each partner owns the whole property: when each of you jointly own the entire property (technically its held by you in trust for yourselves!) The consequence of this is that upon the death of one owner, their interest in the property passes automatically to the survivor. It has therefore been traditional for married couples to buy a property as joint tenants. In recent years this advice has become less and less appropriate for probably the majority of joint home owners with the joint threats of Inheritance Tax (IHT) and creditors, the most voracious being your Local Authority should you become one of the many people needing some form of care in the community or worse need care in a Residential Care Home. An Alzheimer’s sufferer can easily need 24 hour care for 10 or more years at £50,000 a year increasing every year.
Tenants in Commons
Each owner has a distinct share in the property. If there are two owners this will automatically be half each, if three a third each, and so on. Alternatively you can decide between yourselves what share of the property belongs to each owner. For example if two friends were buying a property together and one contributed more to the purchase price than the other, this could be reflected in the respective shares of the property, say 75% and 25%. The important point is that each of the tenants-in-common always owns their share of the property, and are only entitled to that percentage of the sale proceeds, if sold during their lifetime. If they die then their share of the property forms part of their estate. It does not automatically pass to the other owner to increase their estate for inheritance tax or become available for the creditors of the survivor or the new spouse should the survivor remarry (though the surviving partner, surprisingly, need not be disadvantaged.)
