It sounds daunting but severing a joint tenancy doesn’t need to be a frightening move. In short, severing a joint tenancy means changing the title ownership held by joint tenants to tenants in common rather than joint tenants.
Tenants in common defines distinct shares for two tenants. Depending on how this has been set up, this either means a defined portion of a property or, in the absence of documentation, half.
But why might someone sever a joint tenancy to move to a tenants in common agreement instead, and what are the benefits and disadvantages?
Why might a joint tenancy be severed?
A tenants in common agreement, rather than a joint tenancy, allows for separate portions of property income. It even allows for unequal proportions, meaning co-owners might rent out their parts at different rates.
Joint tenancy is also frequently severed due to the breakdown of a relationship. Severing the joint tenancy and moving on to a tenants in common agreement defines individual beneficial interests in the property clearly, giving co-owners more options as to what they wish to do with their shares.
Lastly, it may be decided to sever a joint tenancy in order to share income in a more tax-efficient way. This allows co-owners to utilise lower tax brackets than if they were still working under a joint tenancy agreement.
How might a joint tenancy be severed?
Initially, joint owners would need to agree how any income resulting from the property might be split following the severance. For example, one party may have invested more over time and therefore ask for a larger split of the beneficial interest than the other. It’s vital to do this before the severance of joint tenancy to avoid any legal issues following the sale or rental of the property post-split.
Next, a notice of severance of joint tenancy needs to be served, and an SEV form completed and signed. The form then needs to be sent to HM Land Registry’s Citizen Centre, including any supporting documentation. Notably, there is no fee to do this provided that all of the co-owners consent to the severance of the tenancy.
What are the benefits of severing a joint tenancy?
As we noted above, one of the key benefits is tax efficiency and separate portions of property income. This is particularly helpful if co-owners might wish to rent out portions of their property at different rates and hope for the income to be taxed at lower rates.
Another significant benefit is a clear division of assets, making things easier in the event of a relationship breakdown resulting in the https://www.parachutelaw.co.uk/severance-of-joint-tenancy severance of joint tenancy.
A major disadvantage of maintaining a joint tenancy would be that, in the event of a joint tenant passing away, all assets would automatically be passed down to the other joint tenant(s). This could be a problem with regard to inheritance.
Having a tenants in common agreement might also be disadvantageous if working out shares is daunting, as this does make the process more complicated. In this case, a good solicitor would be able to help.
Severing a joint tenancy needn’t be a difficult or stressful process for the parties involved. It may even offer up benefits with regards to renting out portions of a shared property or may make taxation more beneficial. If future inheritance is a key issue, severing a joint tenancy may even be vital, depending on the wishes of the co-tenants. In this case, this simple process may avoid future heartache and represent a solution that benefits all involved.