Mortgage & Property as Tenants in common

Can some one please clarify the situation for an unmarried couple who own a home as tenants in common in equal shares with a joint mortgage.

  1. Firstly, when the first dies is their share for IHT purposes calculated as their half share of the property value with a half share of the mortgage at the date of death as a liability? or does the mortgage pass to the survivor at the point of death so no liability for half the mortgage is declared?

  2. Also, the does the half share owned by the deceased beneficial interest pass to their beneficiaries as the whole value of their 50 % share or the value of their 50 % share minus half the mortgage at the date of death?

  3. If the survivor wishes to remain in the property (and they are not the beneficiary, nor is there a life interest for their benefit) i assume they have to take on the mortgage but buy out the beneficiaries at the date of death value for the deceased share?

Clarification to the above points would be much appreciated and direction to the relevant section of the IHT manual or the like would also be gratefully received.

The answer will depend on the terms of the Will and whether any specific provision has been made to cover this in a declaration of trust between the owners.

If the above do not assist, the half share of the deceased for iht is subject to half the mortgage, and the beneficiary of the share is likewise. As you say the survivor could buy out the deceased’s share, and the Will could make provision for this.

The last paragraph is only as between the beneficiary and other joint owner. So far as the mortgage company is concerned the survivor is solely responsible after the death.

Simon Northcott

  1. For IHT on death the value of the deceased’s interest will be 50% of market value less 50% of the mortgage debt outstanding at that time. A 10% discount could be applied as the related property provisions do not apply (they apply to a husband/wife scenario).

  2. The answer depends upon the terms of the will. In the absence of anything specific in the will, AEA 1925 s 35 applies ie the the gift of the deceased’s 50% interest would be subject to 50% of the mortgage; or, alternatively, the gift is made free of the mortgage it then typically being discharged out of residue.

  3. The surviving co-habitee continues to own their 50% which gives them the right to remain in the property. If they wish to own 100% of the property this would require them to either purchase the beneficiary’s 50% inheritance for market value (where residue has paid off 50% of the mortgage) or for an amount equal to 50% of market value less 50% of the mortgage where the beneficiary acquires an interest but subject to the mortgage charge.

  4. From the perspective of the mortgagee the surviving co-habitee is legally responsible as to 100% for any outstanding amount of mortgage.

Malcolm Finney


I am following this as I have been asked about a similar situation - the death of a tenant in common (A) 10 years ago, the surviving partner (B) carried on living in the property (no formal agreement was entered into between B and A’s Executors/ Beneficiaries) and has paid the mortgage on her own for the past 10 years. B has now died and her executors are trying to work out the value of the share belonging to A’s beneficiaries.

My question is - is the value of A’s Estate’s share 50% of today’s value/the net sale proceeds less 50% of the outstanding mortgage as at the date of A’s death? That seems fair to me but B’s Executors are saying that it is the value as at A’s death less half the outstanding mortgage i.e. the figure given for IHT purposes.

Leanne Bloomfield
Beverley Morris & Co

@MalcFinney This is a great concise response thank you for your time.

Lucy Leach

I should have thought that it should be half the current value, less half the current outstanding mortgage, but with allowance being made to B for half the mortgage payments during the last 10 years. In the absence of agreement to the contrary, B should only have been liable for half the mortgage payments, although if there had been an agreement made on A’s death, it would have probably been on the basis that B paid all the interest as B was living in the house rent free; however there appears to have been no such agreement.

Simon Northcott

In absence of any written agreement or provable mutual understanding between A and B (even though oral only) covering this situation it simply becomes a matter of market negotiation. B’s executors’ argument seems, prima facie, unfair to A. By having to waif for their monies A surely must benefit at least in part in the growth in value of the property post A’s death even though B continued to pay the mortgage.

Not sure either suggestion in your post is fair.

I think the figures involved are potentially important but we are not given these.

One argument might be that B continued in occupation effectively in exchange for discharging the mortgage. Thus B didn’t need to move home on A’s death but A received no monies ie had to wait until B died.

A and B then share in any growth in value of the property ie A and B now each get 50% of market value on B’s death less 50% of mortgage outstanding on B’s death.

B as owning 50% on A’s death effectively had a right to continue to stay there.

On B’s death B receives back the amount of mortgage B has paid off post A’s death. A and B then each take 50% of property’s market value at date of B’s death less 50% each of the outstanding mortgage on B’s death. B has then effectively lived in the property". rent free" but A now shares in the growth in market value of the property post A 's death.

There has to be an incentive for B to continuing paying off the mortgage and for A to have to wait for the monies on a sale.

This might suggest A and B each get 50% of market value of property on B’s death less 50% of outstanding mortgage on B’s death.

B has lived in the property albeit in exchange for paying the mortgage, say.

On A’s death he would have been entitled to 50% of the property’s then market value less 50% of the then outstanding mortgage; assume net figure 100.

On B’s death A is entitled to 100 compounded until B’s death at say 5% (or whatever % selected). A is making an investment for a fixed rate of return whereas B is gambling on the movement in the market value of the property between A’s death and B’s death.

The possible arguments are endless. As mentioned above, the figures may affect which possibilities are “fair”.

Malcolm Finney

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I see that this is a fairly old thread, but the question I pose is related.

I would be interested to know how other practitioners deal with the scenario where a couple co-own mortgaged property as tenants in common, desire wills incorporating life interest property trusts, AND their life cover is in joint names as joint tenants. When the survivor uses the life cover to pay off the whole mortgage, there can be uncertainty about what the legal position - have they purchased a larger share of the equity or made a gift to the Trust?

I’m not sure that there is any change in the equity shares held in the house or that any gift is made to any trust.

100% of the life policy proceeds will only (typically) be payable to the estate of the survivor who may, depending upon how the mortgage is structured (joint or joint and several), owe 50% or 100% of the mortgage debt. The major problem would seem to be how, on the death of the first tenant in common where his 50% is settled on life interest for the survivor, the trustees are able to discharge 50% of the mortgage attached to the 50% interest in the house (where the mortgage debt is structured as joint and several, not joint); unless they can persuade the mortgagee and the survivor to agree to the latter taking on their 50% debt or funding the 50% debt repayment as and when the survivor dies.

Typically, any such life policy would be held in trust not by the two parties beneficially.

Malcolm Finney.