Property passing outside the estate - Jointly owned property

Learning Outcomes

This article outlines co-ownership of property and the succession, administrative, and inheritance tax implications where assets pass outside the estate, including:

• Distinguishing legal and beneficial co-ownership, the trust of land structure (legal estate as joint tenancy by up to four trustees), and how this appears in exam scenarios
• Comparing beneficial joint tenancy and beneficial tenancy in common and applying consequences on death to wills and intestacy problems
• Explaining the right of survivorship, the commorientes rule where the order of deaths is uncertain, and the different IHT and succession treatments
• Identifying recognised methods of severance, their formalities, and the immediate effect on survivorship and testamentary control
• Analysing inheritance tax treatment of jointly owned property, including valuation of undivided shares, spouse exemption, related property rules, and typical exam calculations
• Applying practical administration points (Land Registry updates, grant requirements, joint bank accounts) and post-death variations of survivorship interests for tax efficiency
• Drafting and interpreting declarations of trust and TR1 wording so beneficial co-ownership and succession outcomes match clients’ intentions and exam fact patterns.

SQE1 Syllabus

For SQE1, you are required to understand how jointly owned property passes outside the estate and the associated succession and inheritance tax implications, with a focus on the following syllabus points:

• the distinction between joint tenancy and tenancy in common
• the operation of the right of survivorship and its effect on succession
• how severance of a joint tenancy affects the passing of property
• the inheritance tax implications of jointly owned property
• the impact of recent legislative changes on intestacy and parental responsibility
• trust of land and co-ownership: legal vs equitable title; maximum number of legal owners
• valuation of undivided shares for inheritance tax; discounts and related property rules
• commorientes (uncertain order of deaths) and post-death variations of survivorship interests

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the main legal effect of holding property as joint tenants rather than as tenants in common?
2. If two friends own a house as joint tenants and one dies, who inherits the deceased’s share?
3. Can a person leave their share in a jointly owned property to someone in their will? If so, under what circumstances?
4. How does severance of a joint tenancy affect the right of survivorship?
5. What is the inheritance tax treatment of a deceased’s share in a property held as joint tenants with a non-spouse?

Introduction

When two or more people own property together, the way in which their interests are held determines what happens to the property on death. The legal structure of joint ownership is essential for succession, as it may mean that property passes automatically to a survivor outside the estate, or instead forms part of the estate to be distributed by will or intestacy. For SQE1, you must be able to explain the difference between joint tenancy and tenancy in common, apply the rules of survivorship, and understand the consequences for inheritance tax and estate administration.

In land law, co-owned land is held on a statutory trust of land. The legal title is vested in up to four trustees who hold as joint tenants, while the beneficial (equitable) interests are held by the co-owners either as joint tenants or as tenants in common. The beneficial form of co-ownership controls devolution on death: a beneficial joint tenancy passes by survivorship outside the estate; a beneficial tenancy in common passes through the estate under a will or the intestacy rules.

Key Term: joint tenancy
A form of co-ownership where each owner is equally entitled to the whole property, and the right of survivorship applies on death.

Key Term: tenancy in common
A form of co-ownership where each owner has a separate, defined share in the property, which can be left by will or pass under intestacy.

Joint Tenancy and Tenancy in Common

Joint Tenancy

Where property is held as a joint tenancy, each owner is entitled to the whole property rather than a defined share. The key feature is the right of survivorship: when one joint tenant dies, their interest passes automatically to the surviving joint tenant(s), regardless of any will or intestacy rules.

This means that the deceased’s interest does not form part of their estate and cannot be left by will. The property passes outside the estate, and the personal representatives have no authority over it.

In practice:

• legal title to co-owned land is always held as a joint tenancy by up to four trustees; it cannot be severed at law
• the beneficial joint tenancy can be severed in equity; once severed, survivorship ceases, and succession follows will or intestacy
• common co-owned assets include the family home and joint bank accounts; where the beneficial joint tenancy exists, survivorship governs devolution despite any contrary testamentary expression

Key Term: survivorship
The rule that, on the death of a beneficial joint tenant, their interest passes automatically to the surviving joint tenant(s), outside the deceased’s estate.

Tenancy in Common

By contrast, a tenancy in common gives each co-owner a distinct share in the property, which may be equal or unequal. There is no right of survivorship. On death, a tenant in common’s share forms part of their estate and passes according to their will or, if there is no will, under the intestacy rules.

A beneficial tenancy in common is often chosen where co-owners contribute unequally or wish to direct their share by will. It is typically evidenced by express wording (e.g. “in equal shares” or “as tenants in common”) in a declaration of trust or in the transfer deed (TR1). Absent clear wording, a beneficial joint tenancy may be presumed unless evidence shows otherwise. It is good practice to record intended shares in a declaration of trust at purchase.

Survivorship and the Passing of Property

The right of survivorship is automatic in a joint tenancy. If three people own a house as joint tenants and one dies, the remaining two become joint tenants of the whole property. This continues until only one survives, who then owns the property outright.

If the property is held as tenants in common, each owner’s share passes into their estate on death. The personal representatives must deal with that share as part of the estate, and it can be left by will or pass under intestacy.

Where the order of deaths is uncertain (for example, in a common accident), the commorientes rule applies for succession: the elder is deemed to have died first, so property devolves as if the younger survived the older.

Key Term: commorientes
Where two or more people die in circumstances rendering the order of deaths uncertain, the older is deemed to have died first for succession to property.

In inheritance tax, deaths in uncertain order are treated as simultaneous for tax only, which can alter the tax computation across the two estates. This divergence between succession and tax treatment must be recognised in problem questions.

Post-death planning may also be available. The survivor who takes by survivorship can, within two years of death, execute a deed of variation that “writes back” the redirection for inheritance tax and capital gains tax purposes.

Key Term: deed of variation (s.142 IHTA)
A post-death instrument within two years that varies dispositions (including survivorship) with statements so HMRC treats the variation as made by the deceased for IHT/CGT.

Severance of Joint Tenancy

A joint tenancy can be severed—converted into a tenancy in common—by written notice, mutual agreement, or certain acts (such as selling or transferring a share). Once severed, the right of survivorship no longer applies, and each owner’s share will pass under their will or intestacy.

Key Term: severance
The process by which a joint tenancy is converted into a tenancy in common, ending the right of survivorship.

Severance operates only on the beneficial interest. Recognised methods include:

• written notice: a joint tenant gives notice of their desire to sever to the other(s); it must evince an immediate intention to sever and takes effect on delivery
• mutual agreement: co-owners expressly agree to hold as tenants in common
• course of dealing: their conduct shows all treated interests as separate shares (e.g. consistent separate accounting for shares)
• dealing with a share: selling, assigning, or charging the beneficial share operates on that share and can sever
• bankruptcy: vesting of a bankrupt’s beneficial interest in a trustee in bankruptcy severs
• forfeiture: where one joint tenant unlawfully kills another, they cannot benefit by survivorship; the beneficial joint tenancy is treated as severed

Severance can be unilateral—it does not require consent. However, if severance is intended to secure testamentary control, timing and proof are critical; a non-urgent divorce petition or negotiation alone may not suffice to sever unless the notice demonstrates immediate intent and is effectively served.

Practical Consequences

Property Passing Outside the Estate

Where property is held as joint tenants, the deceased’s interest passes directly to the survivor(s) and does not form part of the estate for succession purposes. This can override the deceased’s intentions in their will. For land, the survivor can have the legal title updated by producing the death certificate to the Land Registry; for jointly held bank accounts, banks will typically transfer the account to the survivor on sight of the death certificate.

This outcome frequently reduces the need for a grant in respect of those assets. Personal representatives have no authority over jointly held assets that pass by survivorship and must not attempt to administer them as part of the estate.

Property Passing Into the Estate

If property is held as tenants in common, the deceased’s share is included in the estate and can be left to any beneficiary by will or pass under intestacy. A grant is generally required to deal with that share. Co-owners should consider recording unequal contributions or desired succession through a declaration of trust to avoid disputes.

Inheritance Tax Implications

For inheritance tax, the deceased’s beneficial interest in jointly owned property is included in the death estate even where it passes by survivorship. In most cases the beneficial shares will be taken as equal unless otherwise evidenced.

Key points:

• transfers to a spouse or civil partner are exempt, so the inclusion of a joint tenancy share in the death estate usually does not create tax if the survivor is a spouse/civil partner
• for non-exempt survivors (e.g. cohabitees, friends), the deceased’s share is taxed in the usual way; valuation follows open market principles and may apply a discount to reflect the difficulty of selling an undivided share
• the probate value must reflect any change in value caused by death where relevant; an undivided share in residential land may attract a typical discount (often up to around 15%) subject to HMRC agreement
• related property rules can increase value where associated holdings add control or completeness (e.g. paired items or majority shareholdings across spouses), though this is less commonly relevant to routine co-owned homes
• survivorship does not avoid inclusion for tax, but post-death deeds of variation of survivorship interests can “write back” for IHT/CGT purposes if executed within two years with the requisite statements

Donatio mortis causa and gifts with reservation of benefit are treated differently for succession and tax. Although a gift with reservation property does not belong to the deceased for succession, it is aggregated to the death estate for IHT purposes as if still owned by the deceased.

Recent Legislative Developments

Recent changes have affected the rules on intestacy and parental responsibility:

• The Inheritance and Trustees’ Powers Act 2014 disapplies the presumption that a deceased was not survived by their father or second female parent if they are registered on the birth certificate.
• The Human Fertilisation and Embryology Act 2008 allows a child to have a second female parent, affecting inheritance rights.
• The Children Act 1989 now gives automatic parental responsibility to unmarried fathers and second female parents named on the birth certificate.

These changes reflect the recognition of modern family structures and can affect who is entitled to inherit under intestacy. In addition, where deaths are in uncertain order, the commorientes rule determines succession (older deemed to die first), while for tax they are treated as simultaneous, potentially altering the availability of exemptions and nil-rate bands across estates.

Worked Example 1.1

Scenario: Anna and Brian own a house as joint tenants. Anna dies, leaving a will giving all her property to her daughter, Zoe. Who inherits the house?

Answer:
Brian automatically becomes the sole owner of the house by survivorship. Anna’s interest does not pass under her will to Zoe.

Worked Example 1.2

Scenario: Clare and David own a flat as tenants in common, each with a 50% share. Clare dies intestate, survived by her husband and two children. Who inherits Clare’s share?

Answer:
Clare’s 50% share forms part of her estate and passes under the intestacy rules to her husband and children.

Worked Example 1.3

Scenario: Two friends, Emily and Farah, own a property as joint tenants. Emily wishes to leave her share to her brother in her will. What must she do?

Answer:
Emily must sever the joint tenancy, converting it to a tenancy in common. Only then can she leave her share by will.

Worked Example 1.4

Scenario: Greg and Helen hold their home as beneficial joint tenants. Before separation proceedings, Greg serves a written notice on Helen stating he “hereby severs the joint tenancy with immediate effect.” He dies a month later. Does survivorship apply?

Answer:
No. Effective written notice that evinces an immediate intention to sever and is served on the other co-owner severs the beneficial joint tenancy. Greg’s share now passes under his will or intestacy.

Worked Example 1.5

Scenario: Two siblings, Ivan (age 55) and Juno (age 50), own a cottage as beneficial joint tenants. They die together in a boating accident and the order of deaths is uncertain. For succession, who is deemed to have died first?

Answer:
Under the commorientes rule, the elder (Ivan) is deemed to have died first. Juno is treated as surviving Ivan for succession. The cottage would pass to Juno by survivorship and then into Juno’s estate according to her will or intestacy.

Worked Example 1.6

Scenario: Karl and Leila, unmarried partners, own their home as beneficial joint tenants. Karl dies; the property value is £400,000. For inheritance tax, how is Karl’s interest treated?

Answer:
Karl’s beneficial share (normally £200,000 absent contrary evidence) is included in his death estate for IHT. No spouse exemption applies, so the share is chargeable (subject to any available nil-rate bands and reliefs). Survivorship to Leila does not prevent inclusion for IHT.

Worked Example 1.7

Scenario: Mia and Noah own a house as beneficial joint tenants. Mia dies in May. Noah wishes to pass half of the property to Mia’s daughter, Olivia, and wants IHT/CGT treatment as if Mia had left her half to Olivia. What can Noah do?

Answer:
Within two years of Mia’s death, Noah can execute a deed of variation of the survivorship interest with the appropriate statements so HMRC treats the variation as made by Mia for IHT/CGT. This “writes back” the disposition, avoiding a lifetime gift by Noah for tax purposes.

Exam Warning

If a joint tenant dies, their interest passes automatically to the survivor, even if their will states otherwise. Always check the form of co-ownership before advising on succession.

Revision Tip

Remember: joint tenancy = survivorship, property passes outside the estate; tenancy in common = no survivorship, share passes into the estate.

Key Point Checklist

This article has covered the following key knowledge points:

• Joint tenancy involves the right of survivorship; the deceased’s interest passes automatically to the surviving co-owner(s).
• Tenancy in common gives each owner a separate share, which passes into their estate on death.
• Severance converts a joint tenancy into a tenancy in common, ending the right of survivorship; severance can be effected by written notice, mutual agreement, course of dealings, acts operating on a share, bankruptcy, or forfeiture.
• Property held as joint tenants passes outside the estate for succession, but the deceased’s beneficial share is usually included in the death estate for inheritance tax.
• Valuation of undivided shares may be discounted to reflect marketability; spouse/civil partner exemption can remove the charge where applicable.
• Where the order of deaths is uncertain, the commorientes rule applies for succession; inheritance tax treats such deaths as simultaneous for tax only.
• A survivor can vary a survivorship entitlement within two years under s.142 IHTA to achieve IHT/CGT “write back.”
• The legal estate in co-owned land is always held as a joint tenancy by up to four trustees; beneficial shares should be declared (e.g. in TR1 or a declaration of trust) to match intended succession outcomes.
• Always check the form of co-ownership before advising on succession or drafting a will.

Key Terms and Concepts

• joint tenancy
• tenancy in common
• survivorship
• severance
• commorientes
• deed of variation (s.142 IHTA)