What is the tax difference between tenants in common and joint tenants?

Full answer

Choosing between joint tenants and tenants in common is a legal ownership decision with real tax consequences, particularly for couples who own a rental property together or who want more control over how their share passes on death. **The core legal difference** Joint tenants own the whole property together with no defined individual shares -- on the death of one owner, their interest passes automatically to the surviving owner(s) by the right of survivorship, regardless of what any will says. Tenants in common each hold a specific, identifiable share (which can be unequal, for example 70/30), and each owner's share forms part of their own estate on death, passing under their will or the intestacy rules rather than automatically to the co-owner. **Rental income splitting for tax** For married couples and civil partners who jointly own a rental property as joint tenants, HMRC's default rule is that rental income is split 50/50 for tax purposes regardless of who actually contributed the deposit or mortgage payments, unless a valid Form 17 election (with evidence of unequal beneficial ownership) is submitted. Tenants in common can hold unequal shares from the outset (for example 90/10), which -- combined with a Form 17 election for married couples -- allows rental income to be taxed in proportion to the actual ownership share, which can be valuable where one spouse is a basic-rate taxpayer and the other is a higher-rate taxpayer. **Inheritance Tax and estate planning** Because a tenant-in-common's share passes under their will rather than automatically to the co-owner, this structure is often used in Inheritance Tax planning -- for example, allowing each partner in an unmarried couple to leave their share to children from a previous relationship, or enabling a trust to be set up over one partner's share while the other continues to live in the property. Joint tenancy's automatic survivorship can be simpler but offers less flexibility for this kind of planning. **Capital Gains Tax on sale** When the property is eventually sold, each owner is taxed on their own share of the gain -- for tenants in common this follows their defined ownership percentage, while for joint tenants it is treated as an equal split, again subject to any valid unequal beneficial ownership election. **Worked example** A couple buy a buy-to-let property as tenants in common with a 75/25 split reflecting their actual financial contributions, and submit a Form 17 election. Rental profit of £10,000 a year is then taxed 75% to one partner and 25% to the other, rather than automatically 50/50, potentially saving tax if one partner has more unused basic-rate band than the other. **Practical tip** Changing from joint tenants to tenants in common (called 'severing the joint tenancy') is possible during ownership and does not itself trigger Stamp Duty Land Tax or Capital Gains Tax, but you should register the change with the Land Registry and take advice on drafting or updating your will to reflect how you want your share to pass.

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