Do I Need a Declaration of Trust?
If you are buying a house as a joint owner, you’ll be given a choice by your Conveyancing Solicitor as to how you wish to hold the beneficial interests in the property. There are three options that you can choose.
The first is a joint tenancy. This means that each person owns an undivided interest in the property with no specific individual shares. If a joint tenant dies, then their share passes automatically to a survivor.
Alternatively, you can choose to hold the property as tenants in common - either in equal or unequal shares. If you hold the property as tenants in common, you can each leave your share independently under a Will.
If you opt to hold the property as tenants in common, the Land Registry will automatically make an entry on the Title called a Restriction, usually a Form A restriction, which prevents registration of a disposition, such as a sale or mortgage, by one person.
If you’re buying a house or a flat jointly and are each contributing different amounts, then it’s a good idea to clarify the beneficial ownership when you buy, in order to avoid any disputes at a later date. Currently, many people are assisted by the “bank of mum and dad” in buying their first home, and they may want to ensure that their gifted deposit will be returned to them in the event of a relationship breakdown.
A Declaration of Trust (also known as a Deed of Trust) is a legally binding document in which the legal owners of the property declare that they hold the property on trust for the beneficial owners and sets out the shares in which the beneficial interests are held.
Any number of people can enter into a Declaration of Trust and they don’t have to be the same parties as the legal owners of the property. If additional parties have contributed to the purchase price, then a Declaration of Trust is a way of evidencing their beneficial ownership even if they aren’t registered as one of the legal owners of the property.
However, only the legal owners will have the ability to sell or mortgage the property. For that reason, it isn’t necessarily the best way of protecting an investment that you’ve made in a property where you aren’t named as a legal owner.
A Declaration of Trust would typically include some or all of the following:
- Confirmation of the deposit amounts initially contributed by each party. This can also include payments made towards legal costs and stamp duty.
- Confirmation of the percentage of the equity to be repaid to each party if the property is sold – this may be a fixed percentage or a percentage that changes over time
- Confirmation of each party’s intended contributions for the payment of the mortgage and maintenance of the property and other bills such as utilities or council tax
- Details confirming to whom the rental income is to be paid if the property is a buy to let – for example to make use of a non-earning or lower earning party’s income tax allowances.
- Details of any arrangements for valuation of the property in the event of a sale or one person buying another’s share.
You should note that a Declaration of Trust is simply a personal agreement between you, and your obligations to your mortgage lender will always remain joint, regardless of the proportions in which you share the beneficial ownership.
A Declaration of Trust can be entered into at any time, but you should aim to enter into the Declaration at the same time you complete your purchase if possible. The Declaration can also be registered at Land Registry, but this isn’t obligatory.
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