Tenants in Common in Ireland: What Does It Mean?
What is Tenants in Common? What does Tenants in Common mean and how does it differ from a joint tenancy? In this guide, we walk you through what a Tenants in Common agreement is and why it might be an option for you.
What Is Tenants in Common in Ireland?
Tenants in Common is a type of co-ownership agreement that allows for more than one person to have a right to a property or a plot of land. Despite the name, it doesn’t have anything to do with tenancy agreements when renting as is purely used for those who have ownership over a freehold property.
How Does Tenants in Common Work?
Tenants in Common is an agreement that splits up the ownership of a property between two or more people. It works like buying shares in a company where the ownership is divided up by a percentage and each person is given ownership of part of the property.
Tenants in Common Example For example, if three people, John, Maria, and Hannah, decide to enter into a Tenants in Common agreement when buying a house, they can split the ownership of the property up between themselves.
Say in this case, Hannah had the higher salary and was paying a larger part of the mortgage so she takes 50% of the ownership. John and Maria, who pay less towards the mortgage then take 25% each of the ownership.
The division of the ownership share can be based on anything and not necessarily who pays what, but this is a good example to highlight the concept.
What Rights Do Tenants in Common Have?
In a Tenants in Common agreement, the rights of each owner of the property have the same rights and privileges as one another. They are each the legal owners of the property and the amount of ownership held doesn’t determine the rights accordingly. The differences lie in the actual ownership of property.
What Does Tenants in Common Mean for Taxes?
Especially when it comes down to Local Property Tax, it can be confusing who pays what when you have a Tenants in Common agreement in place. Since everyone has ownership of the property, who has the tax liability can be a confusing question to answer.
Who Pays Local Property Tax?
Probably the most confusing question when it comes to paying tax under a Tenants in Common agreement is who is liable for the Local Property Tax (LPT). LPT is applied to each household - whether owner or renter - and is paid in instalments over a year to your local council.
Since Local Property Tax is paid on the property, in the case of a Tenants in Common arrangement, everyone in the agreement is liable for the tax. This doesn’t mean that everyone needs to pay 3 times the rate, but that each person in the agreement is responsible for paying a part of it.
Of course you can agree privately between the tenants who pays for what and there are no legal implications or guidelines as to how you pay - as long as you do pay!
Capital Gains Tax
Capital gains tax in Ireland is paid when you sell, exchange or give away a certain asset. The tax is applied on any profits you make after you've disposed of the asset and is typically charged as a standard rate of 33% with the first €1,270 of gains exempt.
With a Tenants in Common agreement, the capital gains tax is paid by the person who is selling their share of the property. So if only one person decides to sell their ownership, they will pay the capital gains tax but no one else will.
Inheritance Tax
If you want to pass you part of the tenants in common agreement onto your children or someone else, you will need to pay the inheritance tax. In Ireland, the inheritance tax is split into three groups that all have a different threshold when it comes to paying the tax:
- Group A
This usually consists of a direct parent-child relationship and also vice-versa under some circumstances. If this group applies to you you will not be taxed for the first €335,000 of the value. - Group B
This groups includes relationships such as inheritance between siblings, cousins, grandchildren or nieces and nephews. In these cases, the threshold is €32,500. - Group C
This group includes any of the relationships in neither Group A or Group B and has a threshold of €16,250.
Regardless of the group your in, you would pay a 33% tax rate on anything above the portion of the tenants in common agreement. With a tenants in common agreement, only your share of the property will be counted towards your estate and not the entire property.
What happens to mortgages under Tenants in Common? If you take out a mortgage under a Tenants in Common agreement, you can effectively split up the cost of that mortgage and the deposit between the tenants.
This means that all the tenants will need to have their signature on the loan and the liability is on each one of them.
This can be significant in the case of default that can jeopardise the property’s ownership that could be repossessed by the lender.
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Tenants in Common vs. Joint Tenants
Often Tenants in Common is confused with a joint tenancy. Although they are both co-ownership arrangements, they have a lot of differences when it comes to how the ownership is arranged.
What Is a Joint Tenancy?
A joint tenancy is where all the members of the agreement have an equal share of the property and it is not broken up into percentages. In the example from above with John, Maria and Hannah, each of them would own 33.3% automatically.
How Does Tenants in Common Differ?
Despite being very similar, a joint tenancy is very different from a tenants in common agreement when it comes to changes in the agreement. In the case of tenants in common, an individual owner can sell their part of the property separately without affecting the rest of the agreement.
With a joint tenancy however, it can become much more complicated if someone wants to leave the agreement since it is not based on ownership share but instead on having two names on the agreement. For example, it is not as easy to have someone new on the agreement if it's a joint tenancy.
How Do You End a Tenants in Common Agreement?
Ending a Tenants in Common agreement is similar to ending your share in a company. When the partners in the agreement have decided to go their separate ways, one of the tenants can buy out the others in the agreement so that they own the whole property.
If the tenants refuse to work together, the agreement can be taken to court where a judge will order the partition of the property or to sell it as one unit. Whatever happens, the property’s ownership must be resolved with one tenant owning 100% of the freehold by the end of it.
What Happens If a Tenant in Common Dies?
A Tenants in Common agreement can make processes a lot simpler when it comes to dealing with a tenant’s death.
Since the tenants in the agreement all own a part of the agreement in their own right, they may choose to write it into their will as part of their estate. This means that the agreement can pass on to whoever they nominate to succeed them.
Even if a tenant doesn’t write the passing of ownership, it still becomes part of their estate. This can become an issue for the other tenants since - unlike a joint tenancy - the ownership isn’t passed automatically onto them. This can make things more complicated down the line.
Pros and Cons of Tenants in Common
There are many advantages to Tenants in Common arrangements that, especially in current housing market conditions, can make things a lot easier for first-time buyers. There are also quite a few disadvantages that can cause problems when it comes to Tenants in Common that can make it riskier than other agreements:
| Pros | Cons |
|---|---|
| Makes buying a property easier | All tenants are liable for taxes |
| You can change the number of tenants | One tenant can force a house sale |
| You can have different stakes in the property | Share of the property can be passed on without the other tenants’ permission |
| You can leave the agreement easily | Ending the agreement can cause legal issues |
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