Here are 7 things we think you should know about a Severance of Joint Tenancy
When people buy a property together, more often than not they do so as Joint Tenants, meaning that they both own the whole of the property. On the surface, this appears to be the most sensible thing to do, simply believing that property will automatically transfer to the other owner if one of them dies.
Yet Joint Tenancy can have disastrous consequences further down the road for both parties and owning a property as Tenants In Common can be far more beneficial. A Severance of Tenancy is a legal process that enables Joint Tenants to change the status of their property ownership to Tenants In Common.
1. What’s the difference between Joint Tenants & Tenants In Common?
Joint Tenants and Tenants In Common are both types of joint ownership that allow people to co-own property. They differ in the rules that govern them and the way they are set up.
The main differences between Joint Tenants and Tenants In Common are as follows:
In a Tenancy In Common, when one of the property owners passes away, they can specify through their Will that they wish to pass their ownership interest to anyone they choose to. If this is a Joint Tenancy, the deceased owner’s share of the property automatically passes to the surviving owner.
With a Joint Tenancy, 100% of the property value is owned by each signatory to the agreement. Whereas, with a Tenants In Common Agreement, variable percentages of ownership interest in a property can be agreed upon. For example, one person may be contributing a significantly bigger share of the deposit than the other and so may require a higher percentage of ownership.
The reason that property transfers immediately to the surviving owner when the other dies in the case of a Joint Tenancy is that both are registered on the same deed at the same time. It is classed as one transaction with both signatories acting as one party.
This is not the case with Tenancy In Common, where there is not a requirement for all co-owners to enter into a tenancy in common at the same time. In fact, co-owners are able to take an interest in a property many years after the original Tenancy In Common was set up.
There are a couple of important rules that apply to both a Joint Tenancy Agreement and a Tenancy In Common Agreement have to follow a couple of the same rules:
- There must be agreement between all of the co-owners of a property to sell that property
- A joint mortgage to secure a jointly owned property for both types of agreement is required
2. What are the Risks & Benefits of Joint Tenancy?
Let’s assume you own a property with your Spouse as Joint Tenants and it is your second marriage. Your partner has their own wealth and so when you die you would like your share of the property to pass directly to your children from your first relationship. Under the law, the Rights of Survivorship rules dictate that the title of the property is automatically given to the other, surviving property owner, even if your Will specifies other beneficiaries!
On the other hand, if in this same scenario the property is held as Tenants In Common, the deceased’s share can be passed to whoever they have specified in their Will. They may well wish to give the surviving owner a Right to Occupy until their own death, or maybe when they re-marry themselves.
A surviving spouse may choose to re-marrying at a later time and in doing so any existing Will they had would become void. This can lead to a scenario where the new partner would inherit whatever the spouse owned should they predecease them, resulting in the deceased’s children being completely cut out of their inheritance.
The main benefit people see in a Joint Tenancy is when the agreement also includes the Rights of Survivorship. In this arrangement, Tenants have an equal right to the account’s assets and if a joint owner should die, their share in the property automatically passes to the surviving owner. Probate is not required for this element of the deceased’s Estate to pass on.
When someone dies with a Will, the Probate Court reviews the deceased’s Will to confirm its validity, as well as determining the assets and liabilities the deceased might have. If the ownership of the property is on a Joint Tenancy basis, it will be excluded from the Court’s final confirmation of the distribution of any remaining assets to heirs.
Should anyone with joint ownership of the property die without a Will, the residence can still transfer immediately over to the surviving party, unlike the rest of their assets, which must go through the probate process. This can take a substantial amount of time to sort through the estate, potentially causing a substantial delay before the beneficiaries are identified and allocated their share of the inheritance.
This is why many married couples and business partners choose the option to be joint owners. (Which is often a bad idea!)
3. What are the Risks & Benefits of Tenancy In Common?
Tenants In Common own an interest in the property together and have the right to use it separately or together. That also means that each tenant has a responsibility to bear a share of the property’s expenses, proportionate to the percentage they own.
This is fine all the time there is a good relationship between the parties involved as they will need to work together to manage their property. The risks come when relationships become strained or broken, or when there are multiple owners involved as potential disputes can be more likely.
Another risk to be aware of is that each Tenant In Common has the right to sell or bequeath their interest in the property at any time, to whomever they want. The remaining partner or partners end up having to deal with a new partner.
In the example of a couple living in a property as Tenants In Common, it is important to ensure that reciprocal provisions are made if the Right to Occupy is to be granted for the surviving partner in the event of the others’ death.
However, the benefits of a Tenants In Common agreement far outweigh to risks when it comes to the division of property when it comes to Estate Planning.
- Every owner owns the asset and their share forms part of their individual Estate for IHT and Probate purposes
- Equal or unequal percentages of ownership can be set as part of the agreement
- Any owner can sell their share legally without obtaining consent or approval from the other party (Although in reality, this is unlikely to ever happen: who would buy half a property?)
- The asset will be passed to the heirs; as detailed in a Will where one has been written, or under the Rules of Intestacy where no valid Will has been left. (We always recommend you have an up-to-date and valid Will in place.)
- The asset will not transfer automatically to the surviving property owners when the one owner dies, you can control where they go through your Will
- A surviving owner can gain access to their share of the asset, sell it or dispose of it in any way that suits them without the necessity of waiting for a Grant of Probate judgment
- The asset can be passed on death to a Protective Trust which can protect the surviving party (Spouse, Civil Partner or Partner)
The important message here is that someone who has a Tenants In Common Agreement has more control and flexibility over what happens to their property than a joint owner would.
4. How can I sever the Joint Tenancy?
Severing a tenancy is the start of you protecting your share of your property for your loved ones.
The process complexity will largely depend on the relationship you have with the other signatories to the Joint Tenancy Agreement. Changing from Joint Tenants to Tenants In Common is called ‘Severance of Joint Tenancy’ and this change can be made without the other owners’ agreement.
Before serving a notice of severance we would recommend that wherever practical to discuss this with the other owners first, explaining why you want to make this change. With a mutual agreement from everyone involved, the whole severance process can be a lot less stressful!
There will be times where this cannot be achieved, for example, there may be acrimonious divorce proceedings ongoing, or perhaps the other party is not able to agree e.g. if they have lost mental capacity. In this case, you can still serve a notice of severance without their involvement.
There are different forms available at the gov.uk website depending on if you want to serve a notice of severance with the support and agreement of the other parties involved or sever without their knowledge or agreement. These forms have to be completed and submitted to Land Registry along with supporting evidence. There are no fees charged by the Land Registry Office to do this. (You can do this yourself but we would recommend that you take professional advice and let them guide you and take care of the paperwork for you).
5. Do I need a Will or a Will Review as part of the severance of Joint Tenancy?
While having a Will is not a pre-requisite to putting either a Joint Tenants or Tenants In Common agreement in place, it is arguably the most sensible thing to do.
Estate Planning is about making sure you have all the right legal documents in place to carry out your wishes and manage your estate in the event of your death or ill-health and, a Will is just one part of your Estate Plan. Taking the time now to plan what happens to the legacy you leave behind, can help reduce your Inheritance Tax bill and ensure your family will have less to worry about when you are gone.
Estate Planning is so important because failing to make plans for your Estate can lead to unintended consequences for your beneficiaries, including the loss of wealth through paying unnecessary Inheritance Taxes and Care Fees or in the event of a Divorce or relationship breakdown.
Severing the Joint Tenancy is a great opportunity to ensure your Will and Estate Plan is fully up to date to deliver the outcome that you expect for your loved ones when you are no longer here.
6. Can I sever the Joint Tenancy myself?
While you can undertake the process to sever a tenancy yourself, we would always recommend you seek professional advice before embarking on changes to your tenancy agreements. It can be a complex process and it is worth being fully informed of the risks and benefits of the two types of Tenancy Agreement to ensure you make the right decision for you and your circumstances.
Redwood Wills & Trusts are experts in Estate Planning and have been helping Clients to sever Joint Tenancy Agreements for over two decades.
7. What are the costs for severing the Joint Tenancy?
The Land Registry Office does not charge any fees to sever a Tenancy Agreement.
If you choose to seek professional help from Redwood, we charge a fixed fee of £126 inc. VAT. We will ensure all of the correct forms and supporting documentation are accurate and submitted to Land Registry and keep you informed and updated throughout the process, removing the hassle and stress for you to focus on what is important to you.
NB: Prices correct at the time of this article being produced. Our latest fee can be viewed here.
FREE Wills & Trusts Estate Planning Webinar
As professional Estate Planners, we are passionate about helping people to Grow, Protect and Enjoy their wealth, and our FREE Wills & Trusts Estate Planning Webinar is designed to ensure you have all the information you need to choose the right Estate Planning path for you and your loved ones.
Our Webinar will help you to understand the options and consequences an Estate Planner can advise you on: from Inheritance Tax mitigation, Trusts, The Residential Nil Rate Band, Lasting Powers of Attorney, Severance of Tenancy, Cash Gifts, Life Insurance, and Tax Efficient Net Worth Management.