Co-Ownership
Posted on 9th November 2024
Buying a property is a big financial decision, and a large commitment, and one of the biggest purchases most people make in their lifetime. Whether you are purchasing alone, with a partner, or as part of a group, the way you choose to own that property can have both legal and financial implications. In this blog, our head of Conveyancing, Chloe Cardwell, discuss joint ownership options, and how a Declaration of Trust can be an essential document in setting out ownership interests in a property, particularly when the property is owned by more than one person.
Types of Property Co-Ownership
In England and Wales, the legal ownership of property can be structured in several ways, depending on your personal circumstances and future intentions. Here are the main types:

Sole Ownership
Sole ownership means that the property is owned by one person, company, or trust corporation. This is straightforward and commonly seen when a single individual purchases property on their own. The sole owner has complete control over the property, including decisions to sell or transfer ownership, and any income generated by the property usually belongs solely to them.
There are some points to consider:

The sole owner is fully responsible for mortgage payments, property upkeep, and any other debts secured against the property.

Upon the owner’s death, the property will pass according to their Will or the rules of intestacy, if the sole owner dies without a Will.

Joint Tenancy
Joint Tenancy is when the property is owned by more than one party. Usually, the parties own the property as beneficial joint tenants.
There are some factors to consider:

Equal Ownership:
All co-owners own the entire property collectively rather than individual shares. This means each person has an equal right to the whole property, regardless of their contribution to the purchase price.

Right of Survivorship:
If one co-owner dies, their interest in the property automatically passes to the surviving co-owner(s) without the need for probate. This is often the preferred arrangement for married couples or those in long-term relationships, as it simplifies the transfer of ownership after death. However, for various reasons, some people consider it best to own the property as Tenants in Common, discussed by our Conveyancing Solicitors in Lancaster, below.

Tenants in Common
Again, this is a form of property ownership available when more than one person owns a property. Under a Tenancy in Common arrangement:

Specified Shares:
Co-owners hold individual shares in the property, which can be equal or unequal, depending on the agreement between the parties. This is ideal for situations where co-owners contribute different amounts to the purchase price.

No Right of Survivorship:
If a co-owner dies, their share of the property does not automatically go to the surviving co-owners. Instead, it does pass according to their Will or the rules of intestacy, if they die without a Will.
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Factors to Consider When Deciding How to Own Property Jointly
Deciding between joint tenancy and tenancy in common involves careful consideration of several factors. Here are the key points to think about:

Relationship Between Co-Owners
The nature of the relationship between the co-owners is a significant factor. Joint tenancy is often more suitable for couples or those in long-term, committed relationships due to the right of survivorship. Tenancy in common might be preferable for friends, business partners, or relatives who are co-investing but may want to retain independent control over their share. That being said, for the purposes of estate planning, our Conveyancing Solicitors in Lancaster are seeing more people opt for tenancy in common as spouses, civil partners, or co-habitees, to help protect their individual interests in the event of one party’s death.

Contribution to Purchase Price
If co-owners contribute unequal amounts towards the purchase, tenancy in common allows them to reflect this in their ownership shares. For example, if one person contributes 70% of the purchase price, they can own 70% of the property under a tenancy in common. Having the ownership shares agreed from the point of the property purchase can help to prevent disputes later.

Inheritance and Estate Planning
As mentioned above, for those with children or other dependents, tenancy in common allows you to pass on your share of the property according to your Will. In contrast, joint tenancy would automatically transfer your share to the surviving co-owner(s), which may not be suitable for your estate planning requirements. Often, when property is held as tenants in common, it allows the co-owners flexibility to leave their respective shares in the property to their own beneficiaries, whilst offering protection for the surviving co-owner by way of a life interest or property trust in their Wills. This is a specialist area of Will drafting, and legal advice should be sought when considering owning property in this manner.

Disputes
It’s also essential to consider the potential for disputes. A tenancy in common arrangement can help prevent a situation where one co-owner wants to sell the property, but the others do not. With defined shares, there is a clear process for dealing with disagreements, including the possibility of selling one’s share, without impacting the other co-owners.

Tax Implications
The way you own property can have significant tax implications, particularly concerning Income Tax, Capital Gains Tax, and Inheritance Tax. For instance, owning property as tenants in common can be advantageous for estate planning, as each co-owner can use their inheritance tax allowance separately. You should always seek specialist advice about tax planning considerations when purchasing property, such as from our Wills Solicitors, who are adept at advising on Inheritance Tax as part of their estate planning services.
The Role of a Declaration of Trust
A Declaration of Trust, also known as a Deed of Trust, is a legal document that outlines the financial arrangements between co-owners of a property. It is particularly useful when there are unequal contributions to the purchase price, or when co-owners want to clearly define their respective rights and obligations.
When to Use a Declaration of Trust

Unequal Contributions:
If one party is contributing more to the deposit or mortgage repayments, a Declaration of Trust can specify what percentage of the property each party owns. This ensures that each person’s contribution is protected and dealt with appropriately when the property is later sold.

Family or Friends Purchasing Together:
When friends or family members buy property together, their financial situations and future plans may differ. A Declaration of Trust can outline what happens if one person wants to sell their share or if they die to that neither party has uncertainty about their future.

Investment Purposes:
If the property is being bought as an investment, a Declaration of Trust can detail how rental income or proceeds from the sale of the property will be distributed among the co-owners. HM Revenue and Customs also offer advice and guidance on distribution of rental income for jointly owned property, which you can read about, here.

Mortgage Repayment Contributions:
If one party is paying more towards the mortgage, the Declaration of Trust can record this, ensuring that any contributions are repaid when the property is sold.
Key Elements of a Declaration of Trust

Ownership Shares:
The Declaration will specify the exact percentage of the property each person owns.

Proceeds of Sale:
The Declaration will outline how the proceeds of a sale will be distributed when the property is sold. This could be based on the initial contributions or a different arrangement agreed upon by the parties.

Responsibilities:
The Declaration can include details about who is responsible for paying the mortgage, property maintenance, and other expenses.

Dispute Resolution:
The Declaration can also include provisions for resolving disputes, which can be crucial if the co-owners have different views on how to manage or sell the property.
Benefits of a Declaration of Trust

Clarity and Security:
The Declaration provides clarity for all parties involved, ensuring that everyone understands their rights and obligations. This can help prevent disputes in the future.

Legal Protection:
In the event of a dispute, the Declaration of Trust serves as a legally binding document that can be relied upon to enforce the agreed terms as set out within the Declaration.

Flexibility:
It allows co-owners to structure their ownership in a way that best suits their financial contributions and future plans.
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Choosing the right form of property co-ownership is a crucial decision that can have long-lasting implications. Joint tenancy offers simplicity and security, particularly for couples, but can lack flexibility in terms of ownership shares and inheritance. Tenancy in common, on the other hand, provides flexibility and is better suited for co-owners who want defined shares and the ability to gift their share under their Will independently of their co-owner.
A Declaration of Trust can be a useful method of protecting your interests, particularly in joint ownership situations where contributions are unequal or when definitive agreement is needed regarding each party’s share.
Before making a decision when purchasing a property, it’s advisable to seek legal advice from our Conveyancing Solicitors in Lancaster to ensure that your ownership structure aligns with your long-term goals and circumstances. Property is an expensive purchase, and the right co-ownership arrangement can provide both peace of mind and financial security for all parties involved in the future.
Why Choose MG Legal’s Conveyancing Solicitors in Lancaster?
If you are purchasing property, look no further than our Conveyancing Solicitors in Lancaster to assist. With years’ of experience with property purchases, and the conveyancing process, as well as offering expert advice on ways of owning property, our team at MG Legal should be your first-choice Conveyancing Solicitors for your purchase. Our Conveyancing Solicitors are Conveyancing Quality Scheme Accredited, and SRA-regulated, meaning the level of knowledge and skill they offer is high. With fixed-fees and no hidden fees, you can be aware of the costs involved with your purchase from the start.
Contact our Conveyancing Solicitors in Lancaster via email to property@mglegal.co.uk, by calling the Lancaster office on 01524 581306, or by visiting our office at 1 Westbourne Road, Lancaster, LA1 5DB. Alternatively, enquire online, here, for a call back to discuss your property purchase.
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