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 may be an alternative for you.

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What Is Tenants in Common in Ireland?

Tenants in Common is a kind of co-ownership arrangement that allows for more than someone to have a right to a residential or commercial property or a plot of land. Despite the name, it doesn't have anything to do with occupancy contracts when renting as is simply used for those who have ownership over a freehold residential or commercial property.

How Does Tenants in Common Work?

Tenants in Common is an arrangement that breaks up the ownership of a residential or commercial property in between two or more individuals. It works like buying shares in a business where the ownership is divided up by a portion and each individual is provided ownership of part of the residential or commercial property.

Tenants in Common Example For Instance, if three people, John, Maria, and Hannah, choose to participate in an Occupants in Common agreement when buying a house, they can divide the ownership of the residential or commercial property up in between themselves.
Say in this case, Hannah had the higher wage 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 department of the ownership share can be based upon anything and not always who pays what, but this is a fine example to highlight the concept.

What Rights Do Tenants in Common Have?

In a Renters in Common arrangement, the rights of each owner of the residential or commercial property have the very same rights and advantages as one another. They are each the legal owners of the residential or commercial property and the amount of ownership held doesn't determine the rights accordingly. The differences depend on the actual ownership of residential or commercial property.

What Does Tenants in Common Mean for Taxes?

Especially when it boils down to Local Residential Or Commercial Property Tax, it can be confusing who pays what when you have a Tenants in Common agreement in location. Since everybody has ownership of the residential or commercial property, who has the tax liability can be a complicated question to respond to.

Who Pays Local Residential Or Commercial Property Tax?

Probably the most complicated concern when it pertains to paying tax under a Tenants in Common agreement is who is responsible for the Local Residential Or Commercial 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 Residential or commercial property Tax is paid on the residential or commercial property, when it comes to an Occupants in Common arrangement, everyone in the contract is accountable for the tax. This does not imply that everybody requires to pay 3 times the rate, but that everyone in the arrangement is accountable for paying a part of it.

Naturally you can agree independently in between the tenants who spends for what and there are no legal ramifications or standards 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 distribute a particular possession. The tax is used on any profits you make after you have actually dealt with the possession and is generally charged as a standard rate of 33% with the very first EUR1,270 of gains exempt.

With an Occupants in Common agreement, the capital gains tax is paid by the individual who is offering their share of the residential or commercial property. So if just one individual decides to offer their ownership, they will pay the capital gains tax but nobody else will.

Inheritance Tax

If you wish to pass you part of the occupants in common agreement onto your kids or somebody else, you will need to pay the inheritance tax. In Ireland, the inheritance tax is split into three groups that all have a various threshold when it pertains to paying the tax:

Group A
This typically includes a direct parent-child relationship and likewise vice-versa under some situations. If this group uses to you you will not be taxed for the very first EUR335,000 of the worth.
Group B
This groups includes relationships such as inheritance between brother or sisters, cousins, grandchildren or nieces and nephews. In these cases, the limit is EUR32,500.
Group C
This group includes any of the relationships in neither Group A or Group B and has a limit of EUR16,250.
No matter the group your in, you would pay a 33% tax rate on anything above the portion of the renters in typical arrangement. With a tenants in common agreement, only your share of the residential or commercial property will be counted towards your estate and not the entire residential or commercial property.

What happens to mortgages under Tenants in Common? If you take out a mortgage under an Occupants in Common arrangement, you can effectively divide up the cost of that mortgage and the deposit between the tenants.

This implies that all the tenants will require 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 residential or commercial property's ownership that could be repossessed by the loan provider.

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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 plans, they have a great deal of distinctions when it pertains to how the ownership is set up.

What Is a Joint Tenancy?

A joint occupancy is where all the members of the contract have an equal share of the residential or commercial property and it is not separated into portions. 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 really comparable, a joint occupancy is very different from a renters in typical arrangement when it concerns changes in the arrangement. When it comes to renters in typical, a specific owner can offer their part of the residential or commercial property separately without impacting the rest of the agreement.

With a joint tenancy nevertheless, it can become much more complex if somebody wants to leave the agreement considering that it is not based upon ownership share however instead on having 2 names on the agreement. For example, it is not as easy to have somebody brand-new on the agreement if it's a joint occupancy.

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How Do You End an Occupants in Common Agreement?

Ending a Tenants in Common arrangement is similar to ending your share in a business. When the partners in the arrangement have chosen to go their different ways, among the tenants can buy out the others in the contract so that they own the entire residential or commercial property.

If the tenants decline to work together, the arrangement can be brought to justice where a judge will purchase the partition of the residential or commercial property or to sell it as one unit. Whatever occurs, the residential or commercial property's ownership must be solved with one occupant owning 100% of the freehold by the end of it.

What Happens If a Tenant in Common Dies?

A Tenants in Common arrangement can make processes a lot simpler when it pertains to dealing with a tenant's death.

Since the renters in the agreement all own a part of the arrangement in their own right, they August select to compose it into their will as part of their estate. This means that the contract can pass on to whoever they choose to prosper them.

Even if an occupant doesn't compose the passing of ownership, it still ends up being part of their estate. This can end up being a problem for the other occupants considering that - unlike a joint occupancy - the ownership isn't passed automatically onto them. This can make things more made complex 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 much easier for novice purchasers. There are likewise several downsides that can cause issues when it concerns Tenants in Common that can make it riskier than other contracts:

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By David Tait

Editorial Manager

David began his journey at Selectra in March 2021. With his knowledge in various Irish utility markets, he has a strong focus on the energy industry. In addition, David is familiar with Irish broadband, waste collection, and security alarms markets. His well-rounded understanding of these sectors allows him to offer valuable insights and contribute effectively to the team.