Severance of Tenancy

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What is a Deed of Severance?

A Deed of severance allows you to change the way you own property.

Many people own property as joint tenants which means they each own 100% of their property.

A Deed of Severance is used to sever Joint Tenancy of a property, changing the ownership to Tenancy in Common. This is done by one owner serving on the other owner a Deed of Severance.

What is a Joint Tenancy?

If property is owned as a joint tenancy then the whole property, and proceeds of sale, belong to both owners as one.  They do not have separate shares each – they both own the whole thing.  This means that neither of them have a separate share which they can sell or leave in a Will.  If one person dies then the survivor becomes the owner of the whole property (via the right of survivorship) and, where the co-owners were married to each other, this will not attract inheritance tax.  The transferring of ownership via the right of survivorship occurs automatically without any further formality.

Suitability

The automatic right of survivorship makes this form of ownership both suitable and attractive to co-owners who are married to each other or in a civil partnership.  However, even married couples should consider their position and requirements – this can be particularly relevant when making a Will and dealing with Inheritance Tax planning.

What is a Tenancy in Common?

This method of ownership still means that the property is owned jointly, however each owner has a distinct share.  These shares can be either equal or unequal depending upon the agreement that has been made between the owners.  Tenants in common are able to sell their respective share in the property if they so wish.  If one owner dies, then that deceased owner’s share will pass in accordance with the terms of that persons Will or, if no Will has been made, under the rules of intestacy.  The proportionate share in the property which belonged to a deceased tenant in common is subject to inheritance tax rules.  If a property is owned as a tenancy in common then it would be prudent for there to be a separate deed setting out those shares in the property and how the proceeds of sale would be divided if the property was sold.  Such a document is usually called a ‘Trust Deed’ or a ‘Declaration of Trust’ and is signed by all co-owners.  Unless the contrary is stated or evidence to the contrary is proved a court will assume that tenants in common hold the beneficial interest in proportions to the parties original contributions to the property.

Suitability

Co-owners who are not married or have children from previous relationships will usually be advised to hold property by this method. Consideration should be given where contributions made by each co-owner to the purchase price are in unequal proportions.

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