When two or more people buy a property together, one common question that arises is whether they can own it in unequal shares. The answer is yes, you can! Owning property in unequal shares is a common arrangement, especially when buyers contribute different amounts towards the purchase price. In this article, we’ll explain everything you need to know about owning property in unequal shares, and how it works in practice.
What Does It Mean to Own a Property in Unequal Shares?
Owning a property in unequal shares means that each person involved in the purchase does not own an equal portion of the property. This type of ownership is commonly used when buyers contribute different amounts of money to the purchase. For example, if one person contributes 70% of the purchase price and another person contributes 30%, they can own the property in those respective proportions.
This arrangement is usually formalised through a legal agreement known as a Tenancy in Common.
What is Tenancy in Common?
Tenancy in Common is a legal way of owning property that allows multiple owners to hold unequal shares. Each owner holds a specific portion of the property, which can be the same or different from the other owners. The key feature of tenancy in common is that the shares are distinct and separate, meaning that each owner’s share can be sold, transferred, or inherited independently. Similarly, these shares are protected in that, should an owner die during the course of ownership of the property, their share does not get passed on to the survivors automatically but instead, will be distributed in accordance with their Will.
Example:
Let’s say Anna and Bob buy a house together. Anna contributes 80% of the purchase price, and Bob contributes 20%. Under a tenancy in common arrangement, Anna would own 80% of the house, and Bob would own 20%. If the house is sold later, the proceeds from the sale would be divided based on these percentages.
Benefits of Owning Property in Unequal Shares
There are several advantages to owning property in unequal shares:
Fair Contribution Reflection
The biggest advantage is that each person’s share in the property reflects their financial contribution. This ensures that everyone involved gets a fair return on their investment when the property is sold.
Flexibility in Ownership
With tenancy in common, each owner can decide what to do with their share independently. For instance, they can sell or transfer their share to someone else, or leave it in their will. This provides more flexibility than other forms of joint ownership.
Ability to Customise Ownership
Tenancy in common allows owners to decide the exact proportions of ownership. This is especially useful if one person provides the majority of the deposit, but both parties plan to share ongoing mortgage payments.
How to Set Up Unequal Shares Ownership
Setting up ownership of a property in unequal shares is relatively straightforward, but it does require legal documentation to ensure everything is clear and binding.
Step 1: Agree on the Ownership Shares
Before purchasing the property, all parties must agree on the share that each person will own. This can be based on the amount each party contributes to the purchase price, including the deposit and any upfront costs.
Step 2: Prepare a Declaration of Trust
Once you’ve agreed on the ownership shares, it’s essential to create a Declaration of Trust. This is a legal document that outlines the percentage each person owns and what happens if the property is sold or one person wants to transfer their share.
Step 3: Work with a Solicitor
It’s highly recommended to work with a conveyancing solicitor who is a specialist when setting up a tenancy in common. They will help draft the necessary legal documents and ensure that the agreement is legally binding and correctly registered with Land Registry.
Tax Implications of Owning Property in Unequal Shares
One important aspect to consider when owning property in unequal shares is the tax implications. For instance, if you rent out the property and receive rental income, the income will usually be split according to the ownership shares. This means that if you own 70% of the property, you’ll receive 70% of the rental income, and you’ll be taxed accordingly.
It’s essential to consult with a tax advisor to understand how owning property in unequal shares might affect your tax liabilities, especially when it comes to Capital Gains Tax (CGT) if you decide to sell the property.
Common Questions About Unequal Shares Ownership
Can ownership shares change over time?
Yes, the ownership shares can be changed if both parties agree. This usually requires updating the Declaration of Trust and may involve legal costs.
What happens if one owner passes away?
In a tenancy in common, if one owner passes away, their share does not automatically go to the other owner(s). Instead, it is passed on according to the terms of their will. This is different from Joint Tenancy, where the property automatically passes to the surviving owner(s).
Can I own a property in unequal shares with more than one person?
Yes, multiple people can own a property in unequal shares. For example, three people could own 50%, 30%, and 20%, respectively.
Conclusion: Is Owning Property in Unequal Shares Right for You?
Owning property in unequal shares can be a great option when buyers contribute different amounts to the purchase. It ensures that each person’s financial contribution is fairly reflected in their ownership share. However, it’s essential to have a proper legal agreement in place, such as a Declaration of Trust, to avoid any disputes later on.
If you’re considering purchasing a property in unequal shares, it’s highly recommended to work with a conveyancing solicitor to ensure the process is smooth and legally sound. Why not, speak to us today and find out how we can help?
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