Intestacy and Beneficial Joint Tenancy
If you die intestate (without a valid will), strict laws governing the distribution of your estate take effect. In the case that you you die intestate and your home is held in a beneficial joint tenancy, only one of the two laws apply. In this case, the law of tenancy takes precedence over the intestacy rules.
When you die intestate, your share of the home passes to the other joint tenant and is not included in the rest of your estate that is subsequently distributed according to the laws of intestacy. This situation shouldn’t matter if your joint tenant is a close relative or spouse, the same person who would benefit under intestacy rules.
Tenants in Common
Being tenants in common means that you own property with one or more people upon the terms that give each of you a share in it. Under this type of ownership, each tenant is free to dispose of their share of the property as they see fit through their own will. If a tenant in common dies without a valid will, the law of intestacy kicks in but is only applied to their share of the property. The share of one tenant in common never passes automatically on death to the other tenant or tenants in common.
If you own property on a tenants in common basis, make crystal clear in a will who inherits your share. The normal options are:
Give your share to the surviving spouse. If your spouse is the other tenant in common, on your death they become sole tenant (they own the family home outright), and can do whatever they want.
Give your share to the surviving children. If your spouse is the other tenant, your home will be owned jointly by your surviving spouse and grown-up children as tenants in common. Your spouse has the legal right to live in the property until their death.
Give your share to someone outside the family. Some people choose to leave their share to charity, however it is advised to discuss this with your spouse and immediately family first, in order to avoid any nasty surprises in wills which could lead to legal challenges.
Dividing your property between your spouse and grown-up children can be a very smart tax move. This can reduce the size of the taxable estate on the death of your surviving spouse, as half the house has already been passed to the surviving children.
Be realistic about the relationships that your relatives share with one another. If your spouse and adult children do not get on, it’s not a bright idea to write your will so that they own the family home as tenants in common.
To make life simple, you can change the terms of ownership of the property from tenants in common to beneficial joint tenancy so that your property automatically passes to your spouse. All parties must agree to this change and you need to alter the title deeds to the property. Remember, you might have to get permission of any mortgage lender involved. After divorce, couples often go the opposite route and change from joint tenants to tenants in common. However, owning a property on a tenants in common basis is far more flexible from an IHT avoidance point of view. If you are considering changing the terms of ownership, consult a solicitor.
Common Property in Scotland
In Scotland, a home can be owned as common property. Like tenants in common, each owner possesses a portion of the property and on death this is dealt with according to the terms of the will or intestacy. However, the title of the property may contain a survivorship destination. This means that the share of the first co-owner to die passes automatically to the surviving co-owner(s).
It is not possible to change a survivorship destination except by rearranging the title, which requires the consent of all the co-owner(s). The deeds must be prepared by a solicitor. A survivorship destination normally prevents an individual from leaving his or her share of the property by will to anybody but the the co-owner(s).
Freehold or Leasehold
Property is owned on a freehold or leasehold basis. Freehold means that you own your home in its entirety (not forgetting the share of the mortgage lender), while leasehold means that someone else owns the land your property is built on (and often the property itself) and has agreed that you can live there for a set period of time – anything up to 999 years. Whether your house is leasehold or freehold can have a major impact on its value, but it doesn’t affect your rights to leave the property in your will. If you own property on a leasehold basis, your beneficiary can automatically assume the remainder of the lease.