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 occupancy? In this guide, we walk you through what a Tenants in Common arrangement 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 type of co-ownership agreement that allows for more than a single person 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 agreements when renting as is purely utilized for those who have ownership over a freehold residential or commercial property.

How Does Tenants in Common Work?

Tenants in Common is a contract that breaks up the ownership of a residential or commercial property between 2 or more people. It works like buying shares in a business where the ownership is divided up by a percentage and everyone is provided ownership of part of the residential or commercial property.

Tenants in Common Example For Instance, if three people, John, Maria, and Hannah, decide to participate in a Renters in Common contract when purchasing a home, they can divide the ownership of the residential or commercial property up between themselves.
Say in this case, Hannah had the greater salary and was paying a majority 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 on anything and not always who pays what, however this is a fine example to highlight the idea.

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 exact same rights and benefits as one another. They are each the legal owners of the residential or commercial property and the amount of ownership held does not figure out the rights accordingly. The distinctions depend on the real 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 place. Since everybody has ownership of the residential or commercial property, who has the tax liability can be a confusing question to answer.

Who Pays Local Residential Or Commercial Property Tax?

Probably the most complicated concern when it comes to paying tax under an Occupants in Common contract is who is accountable for the Local Residential Or Commercial Property Tax (LPT). LPT is applied to each family - 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 a Renters in Common plan, everybody in the arrangement is accountable for the tax. This does not suggest that everyone needs to pay 3 times the rate, however that each individual in the contract is accountable for paying a part of it.

Of course you can concur independently in between the renters who pays for what and there are no legal ramifications or guidelines regarding 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 particular asset. The tax is applied on any profits you make after you've gotten rid of the asset and is typically 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 person who is selling their share of the residential or commercial property. So if only a single person decides to offer their ownership, they will pay the capital gains tax but no one else will.

Inheritance Tax

If you wish to pass you part of the occupants in common contract onto your kids or another person, you will need to pay the estate tax. In Ireland, the estate tax is divided into 3 groups that all have a different threshold when it comes to paying the tax:

Group A
This typically includes a direct parent-child relationship and also vice-versa under some scenarios. If this group uses to you you will not be taxed for the first EUR335,000 of the worth.
Group B
This groups consists of relationships such as inheritance in between siblings, 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.
Despite the group your in, you would pay a 33% tax rate on anything above the part of the renters in typical arrangement. With an occupants in typical contract, just your share of the residential or commercial property will be counted towards your estate and not the entire residential or commercial property.

What occurs to mortgages under Tenants in Common? If you secure a mortgage under a Renters in Common arrangement, you can efficiently break up the expense of that mortgage and the deposit in between the tenants.

This implies that all the renters will need to have their signature on the loan and the liability is on every one of them.

This can be significant when it comes to default that can jeopardise the residential or commercial property's ownership that might be repossessed by the lending institution.

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Tenants in Common vs. Joint Tenants

Often Tenants in Common is confused with a joint occupancy. Although they are both co-ownership arrangements, they have a lot of distinctions when it comes to how the ownership is arranged.

What Is a Joint Tenancy?

A joint tenancy is where all the members of the contract have an equal share of the residential or commercial property and it is not broken up into portions. In the example from above with John, Maria and Hannah, each of them would own 33.3% instantly.

How Does Tenants in Common Differ?

Despite being extremely similar, a joint occupancy is really various from a tenants in common agreement when it pertains to modifications in the contract. When it comes to occupants 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 occupancy however, it can end up being much more complex if someone wishes to leave the arrangement considering that it is not based on ownership share but rather on having 2 names on the contract. For example, it is not as simple to have somebody brand-new on the agreement if it's a joint occupancy.

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How Do You End a Tenants in Common Agreement?

Ending a Tenants in Common agreement resembles ending your share in a company. When the partners in the contract have actually decided to go their different methods, among the occupants can buy out the others in the contract so that they own the whole residential or commercial property.

If the tenants refuse to work together, the arrangement can be taken to court where a judge will purchase the partition of the residential or commercial property or to sell it as one unit. Whatever takes place, the residential or commercial property's ownership need to be fixed with one occupant owning 100% of the freehold by the end of it.

What Happens If an Occupant in Common Dies?

A Tenants in Common contract can make processes a lot easier when it pertains to handling a renter's death.

Since the occupants in the arrangement all own a part of the agreement in their own right, they August pick to write it into their will as part of their estate. This means that the arrangement can hand down to whoever they nominate to succeed them.

Even if an occupant doesn't compose the death of ownership, it still becomes part of their estate. This can become an issue for the other renters given that - unlike a joint tenancy - 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 lots of benefits to Tenants in Common plans that, particularly in present housing market conditions, can make things a lot easier for first-time purchasers. There are also quite a few disadvantages that can trigger problems when it concerns Tenants in Common that can make it riskier than other agreements:

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By David Tait

Editorial Manager

David began his journey at Selectra in March 2021. With his knowledge in numerous Irish energy markets, he has a strong focus on the energy market. In addition, David recognizes with Irish broadband, waste collection, and security alarms markets. His well-rounded understanding of these sectors enables him to supply important insights and contribute effectively to the team.