“Tenants In Common” vs “Joint Tenants”
A couple of landlord terms which cause confusion when referring to tenants, clarified by Debbie Fletcher.
If you’re going to invest in property, then you need to learn the lingo. By becoming fluent in the terminology of the housing market you’ll be able to ensure that you don’t get tripped up when parting with your hard-earned cash. There are plenty of things that can crop up when you own a property – which is why you need to search out some decent insurance – but don’t let your own lack of knowledge add to the challenges you face.
You might be tempted to think that you already know enough to get by – most of us are exposed to news and issues surrounding the property market on a fairly regular basis after all. Yet this is the equivalent of a ‘Brit abroad’ mistake. It’s like knowing enough French to order a beer but not to ask for directions to the bar in the first place. Subtle differences in words and terms really can trip you up and, when it comes to investing in property, that’s a little more serious than you holiday faux pas.
One example of this is in the difference between ‘joint tenants’ and ‘tenants in common’. Many people might be forgiven that these are two ways of describing the same thing, but they’re not. It’s important to realise the difference and then to consider what that mean as a landlord if you’re trying to make a steady rental income from your property.
Joint tenants are people who, together, have equal right to the whole property. In the eyes of the law, therefore, joint tenants act as one owner making joint decisions. If one person dies their share automatically passes to the other and it cannot be left to someone else in a will. As Your Mortgage notes, this is the typical arrangement between a husband and wife.
Tenants in common
Which? found that fewer than half of people it asked in a survey knew the meaning of this term. In this arrangement, each party owns a defined share of the property. This can be a 50/50 split if you wish but doesn’t have to be. So, for example, if one person is stumping up three quarters of the finance for a property it could be 75/25 instead. With this arrangement, you can sell your own share of the property and can name someone in your will to pass it on to. This is typically the route chosen by friends or relatives who are buying together.
What do landlords need to know?
So, what does all this mean if you’re looking to rent out the property in question?
Well, as Virginia Wallis points out in the Guardian, HM Revenue & Customs (HMRC) treats income from a property that is owned jointly by a married couple or civil partners as if it belongs to them both equally. That means that a husband and wife are each taxed on half of the income, even if they are tenants in common and don’t own an equal share.
However, through a ‘declaration of beneficial interests in joint property’ – HMRC form 17 – you can outline that you wish the rental income to be split along the same lines as the share of the ownership.
People who are married or in a civil partnership who own a property in equal shares cannot split the income any other way than 50/50, while people who are not married or in a civil partnership will pay tax according to the share of the property they own.
It’s worth, therefore, bearing this in mind when you establish your ownership arrangements.
Debbie Fletcher is an enthusiastic, experienced writer who has written for a range of different magazines and news publications over the years. Graduating from City University London specialising in English Literature, Debbie’s passion for writing has since grown. She loves anything and everything technology, and exploring different cultures across the world. She’s currently looking towards starting her Masters in Comparative Literature in the next few years.