Joint tenancy married couples

Joint tenancy married couples

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Old chestnut, I know, on joint ownership, married couple, form 17. But client's lawyer has prepared a declaration of trust (not yet seen by me) and informed our client that my understanding on property joint tenancy and taxation is wrong. It would be great to receive well informed confirmation from fellow AWebbers, if that is the case.

High earning client wishes non-earning wife to be seen as 100% beneficial owner of several BTLs, owned as joint tenants, and has subsequently called HMRC to say "who's right?" HMRC, of course, sit on the fence; client, of course, doesn't want to pay more fees.

My understanding, based on Form 17 guidance notes, tax training courses, TSEM9850, discussions in Taxation and Accountingweb, was that legal Joint Tenancy equates precisely to joint beneficial ownership and means an undivided share of the whole. I believed that without discreet shares, as I thought can only be held by tenants in common, a declaration or Form 17 would be invalid. Can a declaration of trust evidence a non-equal ownership share of property owned as joint tenants? The lawyer states I'm confusing legal and beneficial ownership. However, I'd (mis?) understood that joint tenancy is a form of beneficial ownership with accompanying automatic income and IHT survivorship implications. I'm no lawyer!

The lawyers disagree. Perhaps a declaration of trust severs joint tenancy and creates a tenancy in common, so that Form 17 can state that the property is now held in unequal shares. I've not filed a form 17 before and this client intends filing it himself (trained with a certain professional body and senior bod in industry) but guess who then files the 2015/16 tax return.

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By maxaca
12th Jan 2016 18:39

You need to establish the type of ownership ?
You seem adamant that they own as joint tenants whereas lawyer seems to believe it is tenants in common, which is correct?
Form 17 is for tax treatment only, where beneficial (rather than legal) ownership is not equal as HMRC default position on joint ownership is 50:50 regardless of actual beneficial ownership.
Solicitor can confirm if trust declaration severs joint tenancy (seems likely). Presumably client now considers himself to be a nominee with his name on the Deeds but with no beneficial interest? Whose income was it up to now?
Did she contribute anything towards initial purchase or is this effectively a gift by him to her of the whole?

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By JimH
12th Jan 2016 23:01

Joint tenants
Thanks, but that is the point. It is the solicitor who states that all properties are owned as joint tenants, after having already prepared a deed of trust; this solicitor has never indicated ownership as tenants in common. The lawyer states that joint tenancy is only for legal title, and is separate from the beneficial ownership that drives the income tax and CGT treatment.

But yes please - it would be great if you could elaborate on the suggestion that a declaration of trust overturns the default beneficial ownership position of joint tenancy.

I recall a prestigious tax lecturer indicating that one spouse's financial contribution to purchase costs should not be used as a determinant of beneficial ownership; as there should not be a requirement to trace funding within a marriage. However, I confirm that mortgages were in joint names for at least some years at the last check. And income has been taxed 50:50 for some years. I'd understood joint tenancy needs to be severed and replaced with tenancy in common. But not according to the lawyer.

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Replying to DJKL:
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By maxaca
13th Jan 2016 09:33

this is a legal rather than accountancy question

and lawyers seldom agree so you may wish to get a second legal opinion for your own benefit?

Sadly my browser doesn't let me post links and the typing function is questionable but if I've typed this correctly it may be worth a look?

https://www.lawsociety.org.uk/support-services/advice/practice-notes/joi...

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Portia profile image
By Portia Nina Levin
13th Jan 2016 10:43

The solicitor is correct. The legal ownership is in joint names, and CAN ONLY BE HELD as joint tenants, as a matter of land law. The effect of the deed of trust expressing other than 1 50:50 shares is that the beneficial ownership is as tenants in common. See sections 2.1 and 2.2 of maxaca's link.

Unsurprisingly, HMRC's guidance presents matters in a way that suits them, and the prestigious tax lecturer was lecturing out of their [***].

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Replying to C J EYRE:
By JimH
13th Jan 2016 21:40

legal vs beneficial ownership

Portia Nina Levin wrote:

The solicitor is correct. The legal ownership is in joint names, and CAN ONLY BE HELD as joint tenants, as a matter of land law. The effect of the deed of trust expressing other than 1 50:50 shares is that the beneficial ownership is as tenants in common. See sections 2.1 and 2.2 of maxaca's link.

Unsurprisingly, HMRC's guidance presents matters in a way that suits them, and the prestigious tax lecturer was lecturing out of their [***].

 

Except, PNL, the solicitor isn't saying that legal ownership can only be held as joint tenants.  He actually states that legal interest in the ownership can be as joint tenants or tenants in common, and has now offered to change it to the latter (with consequent implications for will planning).  

"You own both properties as joint tenants. It is easy to change the ownership to tenants in common should you wish...The ownership of joint tenants or tenants in common equates to the legal interest only and this remains in your joint names."

 

I had already read the cited Law Society paper before posting my OP but found the 2.1 and 2.2 together with TSEM9850 confused me more, with the client's solicitor offering to change ownership to tenancy in common; hence the original question.

 

 

 

PNL and maxaca,  thank you for helping.  I think I'm coming out of the fog and gleaning, from pooling various sources, that there is LEGAL joint tenancy; LEGAL tenancy in common; BENEFICIAL joint tenancy and BENEFICIAL tenancy in common and writers tend to be slap dash in terminology with the assumption that the dim reader (me) will understand which is being referenced.  So - correct me if I'm wrong          - and have a laugh on me if I've finally got it:

 

husband and wife can simultaneously hold property as legal joint tenants (ensuring automatic passing of property at death) AND as beneficial tenants in commonHMRC must accept a husband's gift of all his beneficial ownership to his wife if Form 17 is filed.  If they want to see evidence of specific shares, that evidence is the declaration of trustif the husband wishes to gift all his beneficial interest to his wife, his tax return can safely cease recording rental income from the last signed date on form 17.  The property still automatically reverts to him if she dies and they should rethink beneficial ownership shares before selling!

 

 

Law Society:  

If the owners expressly declare themselves to be joint tenants and the property is subsequently sold, the assets will be divided between the parties in equal shares. If the owners are tenants in common and expressly declare the shares in which they hold the property, the proceeds of sale will be divided in those proportions.

So the Law Society is talking only about beneficial ownership throughout this paragraph.  Silly me for not spotting that their not all joint tenants are the same.

 

 

 

 

And why did I not identify that HMRC's reference to beneficial joint tenants has nothing to do with legal joint tenants?

 

TSEM9850

A declaration cannot be made where a husband and wife or civil partners own property as beneficial joint tenants. In these circumstances the couple do not own the property in shares at all, but are entitled jointly to the whole of both the property and the income. This is distinct from the situation where the husband and wife or civil partners own property as beneficial tenants in common where they are each entitled to specific shares in the property and the income arising

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By nogammonsinanundoubledgame
14th Jan 2016 00:10

It is possible ...

OK this is my understanding, which could be an accumulated decade of hogwash:

It is possible, and not that uncommon, for a joint tenancy to be severed in favour of a tenancy in common without disturbing the 50:50 split of beneficial ownership.  You might do this for example if on your death you wanted to bequeath your half share without it passing by survivorship, and if you did not want your estate for IHT to include the entire property.

So, if there has been a change, and it has not been a change of beneficial ownership (50:50 before, 50:50 after) then that change is in the legal ownership (to me, so it seems). I have also been taught from the cradle that a "joint tenancy" must be treated as equally beneficially entitled. Accordingly I have taken the view until now at least that if the beneficial ownership is otherwise than 50:50 it must have followed from a change of legal ownership from joint tenancy to tenancy in common. But by contrast a conversion from joint tenancy to tenancy in common does not necessarily result in a change of beneficial ownership (although it might).

With kind regards

Clint Westwood

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Portia profile image
By Portia Nina Levin
14th Jan 2016 10:54

A legal interest in land cannot be held otherwise than as joint tenants, by virtue of paragraph 1(6) of the Law of Property Act 1925: "a legal estate is not capable of subsisting or being created in an undivided share [as applies to tenants in common] in land...".

See also: http://www.inbrief.co.uk/land-law/coownership-land-law.htm

A change in the beneficial ownership from joint tenancy (by default to match the only possible legal interest) to tenancy in common does change things. With a joint tenancy the joint tenants are effectively treated as a single person who owns the whole of the property, each being a proportion of the person who owns the property. With tenants in common each tenant is a separate person who owns an undivided share in the property.

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Replying to Donny7:
By JimH
14th Jan 2016 13:26

coownership land law

Portia Nina Levin wrote:

A legal interest in land cannot be held otherwise than as joint tenants, by virtue of paragraph 1(6) of the Law of Property Act 1925: "a legal estate is not capable of subsisting or being created in an undivided share [as applies to tenants in common] in land...".

See also: http://www.inbrief.co.uk/land-law/coownership-land-law.htm

 

Big thanks Portia for helpfully referencing this clearer analysis.

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