Before buying a house in the UK, it’s really important to consider the types of property ownership that prevail in the country. Freehold or leasehold? Commonhold or share of freehold? There are lots of types of ownership to consider.
To help you, this guide introduces the different types of property ownership options available to you and runs through their pros and cons. By the end of this piece, you will understand which type of ownership is best for you, enabling you to continue your search for your dream home.
What are the Forms of Property Ownership?
There are three primary types of property ownership in the UK:
The most straightforward type of property ownership in the UK is sole ownership. This is where a single person owns a total interest in an asset, which can be transferred from one person to another via a sale/purchase agreement.
Regarding taxes, income and capital gains made on the property are charged to the individual owner alone. It’s not possible to share income and capital gains with a spouse or civil partner for tax benefits.
Most people who purchase a home in the UK become sole owners, but it’s certainly not the only type of home ownership to consider.
Another way to own property in the UK is through a joint tenancy agreement. Here, it is presumed that you and one other person hold joint shares in the property’s value.
Because each individual is entitled to an equal share in the property in a joint tenancy agreement, income and capital gains must be split 50/50, and no election can be made to split the difference.
Should one person die, the property is then automatically owned solely by the surviving owner. The deceased party can usually be removed from the land registry records by formally notifying the office of the death (and providing proof of death).
Tenancy in common
A tenancy in common can be an attractive property ownership arrangement for some people, as it enables several individuals to own a property in equal or unequal shares.
This can be particularly useful if one person contributes more capital to purchasing a property than another. Should you wish to pursue a tenancy in common, it’s recommended to draw up a deed of trust to articulate the particulars of the ownership.
It’s also important to note that the right of survivorship doesn’t apply to tenants who hold a tenancy in common agreement. Therefore, if one of the owners dies, their share is left to a beneficiary as stipulated in their will.
What are the Types of Ownership Titles?
In addition to the types of property ownership, you also need to consider the different ownership titles that prevail in the UK:
The first option is to own a property freehold. In a nutshell, a freehold means that you own a property that is “free from hold” of anyone other than the owner. In other words, you have the right to use the property in any way you see fit, as you are the sole named owner for an undefined period.
In most instances, it’s easier to process a freehold sale and it requires less paperwork than lease holdings. However, this also means that freeholds are often more expensive, which is something that you need to take into consideration.
When you purchase a property via a leasehold, you are buying it for a pre-determined amount of time. Once the term of the lease runs out, ownership of the property transfers to the person that owns the land if the lease is not renewed.
Many leases in the UK run for at least 99 years, but they can run for as long as 999 years. A 999-year lease is essentially as good as a freehold, but short leasehold arrangements (less than 80 years) can be problematic, particularly when it comes to re-selling your property.
One potential challenge of leaseholds is that they come with specific restrictions, meaning that you need to understand the terms and conditions of the lease before agreeing. For instance, you may not be permitted to own pets, and you might need to apply to make changes to the property itself.
Share of freehold
Share of freehold titles is usually associated with flats and apartments. If you buy a flat with a share of freehold, you own the lease for your individual flat. It also means that you own a share of the freehold for the entire block of flats.
This can be advantageous, as it gives you greater control over the management of the building. It’s also likely that a share of freehold doesn’t come with ground rent, offering you significant cost savings.
You need to be aware that you’re subject to costs related to the maintenance and renovations of the building itself, which can add to your monthly expenses throughout the year.
Commonhold is a lesser-known alternative to leasehold and freehold ownership. Essentially, commonhold is the ownership of a freehold within a building or estate.
This type of property ownership is a good prospect for some buyers as it enables you to own the property on a piece of land in perpetuity rather than for a set term (99 years, for instance).
This protects your ownership of the property and means it can’t be forfeited, as with a leasehold. Although commonhold arrangements are not as prevalent as freeholds and leaseholds, they’re definitely worth considering.
Understanding the types of property ownership in the UK is important if you’re investing in property. While there isn’t one right or wrong way to own a home or commercial property, you do need to be aware of the differences between each type of ownership before making your plans. For more information about property ownership in the UK, please refer to this government article.
If you’re saving for a new home, our Jars can help you put money aside every month to meet your savings goals. You can also check out our guide to saving money for a house to help you save enough for a deposit on your dream home, or see our full breakdown of costs involved in buying a house to learn the upfront and hidden costs of home ownership.