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If you own a rental property with someone else, the way you structure that ownership can save or cost you thousands of pounds in tax every year. Joint tenants and tenants in common are the two main options, and each has different implications for income tax, capital gains tax, and inheritance tax. This guide explains which structure suits your situation, when to switch, and how to do it.
Both joint tenants and tenants in common offer different advantages and drawbacks to property buyers. Unsure which type of joint ownership suits you? It depends on your individual circumstances and needs. We’ve outlined the differences between the two below.
Remember that the type of ownership you pick will affect what you can do with the property. This is if either one of you dies or if your relationship breaks down.
In a joint tenancy, both owners hold the entire property together. It doesn’t matter if one person contributed more to the purchase: you each own the whole thing equally.
If one owner dies, the property automatically passes to the surviving owner. This is known as the right of survivorship, which means joint tenants cannot leave their share to anyone else in their will.
Joint tenancy is popular with couples in committed relationships and close family members, as it keeps things simple and can reduce legal costs.
For tax purposes, HMRC treats joint tenants as splitting all rental income and capital gains 50/50, regardless of who paid what towards the purchase.
During a divorce, the distribution of your assets – including the property – is treated differently. However, if you hold the property as joint tenants, this would still be split into equal amounts, regardless of if one buyer contributed more towards the initial purchase.
Tenants in common each own a separate, defined share of the property. Those shares don’t have to be equal: you might own 80% while your co-owner holds 20%.
Key things to know:
This structure is a sensible choice for investment properties, or when buying with someone you’re not in a close personal relationship with.
Tenants in common allows you to split rental income and capital gains in line with your actual ownership shares, which can be more tax-efficient if one owner pays a lower rate of tax.
If you own a property as tenants in common, it’s strongly recommended that you draw up a Deed of Trust (sometimes called a Declaration of Trust). It sets out each owner’s financial share and what happens if the property is sold or one owner wants to buy the other out.
A Deed of Trust also provides evidence to HMRC if you want to split rental income other than 50/50.
While not a legal requirement, having one in place can prevent disputes and save significant time and cost later.
Changing from joint tenants to tenants in common is called a ‘severance of joint tenancy’ and you need to apply for a Form A restriction. You don’t need the other owners’ permission. If you want to change from tenants in common to joint tenants, you need the agreement of all the other joint owners.
The ownership structure you choose affects three types of tax: income tax, capital gains tax, and inheritance tax. Here’s when it really makes a difference.
HMRC’s default rule is that married couples and civil partners split rental income 50/50, even if one person contributed more to the purchase or owns a larger share.
If you’re tenants in common, you can elect to split income according to your actual ownership shares instead. You do this by filing Form 17 with HMRC. This can make a real difference if one of you pays income tax at a lower rate.
For example, if one partner earns £30,000 and the other earns £70,000, shifting more rental income to the lower earner could save over £1,000 a year.
If you’re not married, HMRC taxes each owner on their actual ownership share. The catch is that joint tenants are still assumed to own 50/50, even if one person put in significantly more money.
Tenants in common avoids this problem. Your shares are set out clearly from the start, so each person pays tax on what they actually own.
If one co-owner has little or no income, there’s a real opportunity to reduce your tax bill. Shifting rental income to the lower earner makes use of their personal allowance and lower tax bands, which can save 20–40% on the income that’s moved across.
This is one of the most effective reasons to own as tenants in common, particularly if one partner is not working, retired, or on a significantly lower salary.
The way you own a property directly affects how much rental income each of you pays tax on, and how much of that tax you can reduce.
Under joint tenancy, HMRC splits rental income 50/50. Each person reports half the rent and half the allowable expenses on their Self Assessment tax return, regardless of who manages the property or contributed more to the purchase.
If you’re married or in a civil partnership and own the property as tenants in common, you can file Form 17 with HMRC to split rental income in line with your actual ownership shares, rather than the default 50/50.
A rental property generates £15,000 net income per year. Owner A is a higher-rate taxpayer (40%). Owner B is a basic-rate taxpayer (20%).
| Ownership split | Owner A (higher-rate) | Owner B (basic-rate) | Total tax |
| Default 50/50 split | £7,500 → pays £3,000 | £7,500 → pays £1,500 | £4,500 |
| 90/10 tenants in common + Form 17 | £1,500 → pays £600 | £13,500 → pays £2,700 | £3,300 |
Annual saving: £1,200
Your ownership structure determines who inherits your share and how much tax they pay.
IHT is a tax on your estate when you die. If your estate exceeds the tax-free threshold, the excess is taxed at 40%.
If your share passes to your spouse or civil partner, no IHT is due either way. If it passes to anyone else, the structure matters.
Note: For IHT purposes, property is valued at its open market value on the date of death. It’s worth getting a professional valuation from a RICS-accredited surveyor, as HMRC may challenge figures they consider too low.
IHT is charged at 40% on the value of your estate above these thresholds:
Inheritance tax (IHT) rates in the 2025/26 tax year 👇
| Inheritance type | Tax-free threshold | Rate payable after threshold |
| Standard | £325,000 | 40% |
| Children, grandchildren | £500,000 | 40% |
| Spouse, civil partner, charity | No limit | 0% |
| Charity donation | 10% or more of estate value | 36% |
| Small gifts | £3,000 per tax year | 40% |
| Agricultural property | £1m* | 20% |
*there’s also a 50% tax relief for farmers with land worth more than £1m. Check out HMRC for more on this.
Tenants in common gives you more control over IHT planning. You can leave your share to your children or grandchildren and claim the residence nil-rate band (RNRB) of £175,000 – on top of the standard £325,000 nil-rate band. That’s a total tax-free threshold of £500,000 per person.
Bear in mind the RNRB must be claimed by your executors when they file your IHT return. It is not applied automatically.
Joint tenancy locks you into automatic transfer on death, which removes that flexibility and may mean your allowances go to waste.
When you sell a jointly owned property, the way you split the gain can make a significant difference to your tax bill.
When you sell a jointly owned property at a profit, each owner is taxed on their share of the gain:
Capital gains tax rates in the 2025/26 tax year. It’s paid on profits over the £3,000 CGT allowance
| Type of asset | Basic rate | Higher rate |
| Shares | 18% | 24% |
| Residential property | 18% | 24% |
| Bitcoin/cryptocurrency | 18% | 24% |
| Other | 18% | 24% |
Each owner gets their own £3,000 CGT allowance. If one owner is a basic-rate taxpayer (18% CGT) and the other pays the higher rate (24% CGT), shifting more of the gain to the lower-rate owner saves 6% on every pound moved across, which adds up quickly on a large gain.
A property is bought for £200,000 and sold for £260,000 – a gain of £60,000. After both owners use their £3,000 CGT allowance (£6,000 total), the taxable gain is £54,000.
| Ownership split | Owner A | Owner B | Total CGT |
| Joint tenants (50/50) — both higher-rate | £27,000 × 24% = £6,480 | £27,000 × 24% = £6,480 | £12,960 |
| Tenants in common (90/10) — one basic-rate | £27,000 × 24% = £6,480 | £27,000 × 18% = £4,860 | £11,340 |
Saving: £1,620
You can estimate your own CGT liability using our CGT calculator.
Switching ownership structure is a straightforward process, but it’s worth knowing when it makes financial sense before you act.
Switching is worth considering if:
Switching may not be necessary if:
The process typically costs between £100 and £300 in legal fees.
Need help with your landlord tax return? If you’re unsure how to report rental income, split ownership, or claim mortgage interest relief, Taxfix can help. Our accredited accountants handle everything for you.
Find out more about our landlord tax return service →
Tenants in common is a form of joint property ownership where each person holds a defined share. Unlike joint tenancy, shares don’t have to be equal, and each owner can leave their share to whoever they choose in their will.
The main tax benefit is flexibility. The tenants in common tax implications for rental income mean you’re taxed on your actual ownership share rather than a default 50/50 split. If one owner pays a lower rate of income tax, this can reduce the overall tax bill by hundreds or even thousands of pounds a year. For married couples or civil partners, Form 17 makes this election official.
Not necessarily, but they can. The joint tenants tax implications stem from HMRC’s assumption of a 50/50 income split. If one owner pays a higher rate of tax, more rental income is taxed at that higher rate than it needs to be. Tenants in common with an unequal split can avoid this.
Yes. You apply for a Form A restriction at HM Land Registry. You don’t need the other owner’s agreement to do this. It’s a relatively straightforward process, though it’s worth taking legal advice to make sure the ownership shares are documented correctly.
Form 17 is an election you send to HMRC to declare that you want rental income split according to actual ownership shares rather than 50/50. It’s only available to married couples and civil partners who own property as tenants in common. You’ll need a Deed of Trust as supporting evidence.
Yes. When you sell the property, each owner pays CGT on their share of the gain. If one owner is a basic-rate taxpayer, their CGT rate on residential property is 18% rather than 24% – so holding a larger share in the lower-rate owner’s name can reduce the overall CGT bill.
Under joint tenancy, the property automatically passes to the surviving owner. This is known as the right of survivorship, which means the deceased owner cannot leave their share in a will. If the surviving owner is not a spouse or civil partner, the value of the deceased’s share may be added to their estate and could trigger an IHT liability.
No. Form 17 is only available to married couples and civil partners. Unmarried couples who own property as tenants in common are automatically taxed on their actual ownership shares, so no election is needed.
This article provides general information only and is not personalised tax advice.
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