Declaration of Trust Property

When more than one person owns a property, questions often arise about how the ownership should be shared and how proceeds from a sale should be divided. While the legal title of a property shows who owns it, it does not always explain the financial arrangements between the parties. This is where a Declaration of Trust plays an important role.

At Blackstone Solicitors, we advise clients across England and Wales on how to protect their interests in property through clear and enforceable legal agreements. This article explains what a Declaration of Trust is, why it may be needed, and the key points to consider.

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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of Property law, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.

What Is a Declaration of Trust?

A Declaration of Trust (sometimes called a Deed of Trust) is a legal document that records the beneficial ownership of a property. It sets out the shares in which the property is owned and how any financial benefits, such as sale proceeds or rental income, should be distributed between the parties.

While the legal title may show joint ownership, the beneficial interest determines who is entitled to the underlying value. A Declaration of Trust clarifies these arrangements and avoids disputes later.

Why Might You Need a Declaration of Trust?

There are several common situations where a Declaration of Trust is advisable:

1. Unmarried couples buying together: Unlike married couples or civil partners, there is no automatic presumption of equal ownership for unmarried couples. A Declaration of Trust records how much each party has contributed and ensures fairness if the relationship ends.
2. Family members assisting with a purchase: Parents may provide a deposit for a child’s property. A Declaration of Trust can protect this contribution, ensuring it is returned if the property is sold.
3. Friends investing together: Where friends or business partners purchase a property, the document sets out their respective stakes and responsibilities.
4. Unequal contributions: Even if both parties are on the mortgage, one may contribute more to the deposit or repayments. A Declaration of Trust reflects this.
5. Buy-to-let properties: Investors can use a Declaration of Trust to define how rental income and sale proceeds will be divided.

In essence, the document provides clarity, protection, and peace of mind.

Legal Ownership vs Beneficial Ownership

It is important to distinguish between legal and beneficial ownership:

• Legal ownership: The names on the title deeds registered at HM Land Registry. Legal owners are responsible for the mortgage and can sell or mortgage the property.
• Beneficial ownership: The true economic interest in the property – who is entitled to profits, sale proceeds, or rental income.

A Declaration of Trust allows the beneficial ownership to be tailored, even if the legal ownership is joint. For example, a property may be legally owned by two individuals but beneficially owned 70:30, as agreed in the declaration.

What Can a Declaration of Trust Include?

A well-drafted Declaration of Trust can cover a wide range of issues, such as:

• The percentage share of ownership for each party.
• How the initial deposit was funded.
• Responsibility for mortgage repayments and other expenses.
• Entitlement to rental income.
• How proceeds will be divided on sale.
• What happens if one party wishes to sell while the other does not.
• How improvements or renovations paid for by one party are taken into account.

The document can be as straightforward or as detailed as needed, depending on the circumstances.

Is a Declaration of Trust Legally Binding?

Yes, provided it is properly drafted, signed, and executed as a deed, a Declaration of Trust is legally binding. It gives each party enforceable rights to their agreed share of the property.

It is, however, important to remember that circumstances can change. For example, if a couple later marry, the legal effect of the declaration may be altered by family law principles. Regularly reviewing the document with a solicitor is advisable.

Relationship with Joint Ownership

When two or more people buy a property, they usually choose between joint tenancy and tenancy in common:

• Joint tenants: Each person owns the whole property together. If one dies, the survivor automatically inherits the whole (the “right of survivorship”).
• Tenants in common: Each person owns a defined share, which can be passed on separately (e.g., through a will).

A Declaration of Trust is usually associated with tenancy in common, as it records the unequal shares of ownership. Without such a declaration, the law may assume equal shares, regardless of contributions.

Tax Implications

A Declaration of Trust can also have tax consequences, particularly for income tax and capital gains tax. For example:

• If a property generates rental income, the declaration determines how that income is split for tax purposes.
• If the property is later sold, capital gains tax will be calculated based on each party’s share as set out in the declaration.
• For married couples and civil partners, HMRC may require additional forms if beneficial ownership is split unequally.

Professional advice is essential to ensure compliance and to minimise tax liabilities.

Practical Steps in Creating a Declaration of Trust

1. Agree the terms: All parties should discuss and agree how the property should be divided.
2. Instruct a solicitor: A solicitor will draft the declaration to reflect the agreement accurately and in compliance with legal requirements.
3. Execution: The declaration must be signed and executed as a deed.
4. Registration (if applicable): If the shares are unequal, it may also be necessary to update the Land Registry with a “Form A restriction” to prevent sale without both owners’ consent.

Common Issues and Disputes

Disputes often arise when no Declaration of Trust exists, or when the document is unclear. Common issues include:

• One party claiming a greater share than originally agreed.
• Disagreement over who paid for improvements.
• Confusion over how to divide sale proceeds.
• Arguments between co-owners after a relationship breakdown.

A clear and well-drafted Declaration of Trust minimises the risk of disputes by setting everything out in writing.

When to Review a Declaration of Trust

Circumstances can change, and it may be necessary to review and update a Declaration of Trust. Situations that might trigger a review include:

• Marriage, divorce, or separation.
• Additional contributions to the mortgage or renovations.
• Changes to how the property is used (e.g., renting it out).
• New co-owners being added.

Keeping the declaration up to date ensures that it continues to reflect the intentions of all parties.

How Blackstone Solicitors Can Help

At Blackstone Solicitors, we assist clients across England and Wales with all aspects of property ownership and trusts. Our services include:

• Advising on the most suitable ownership structure.
• Drafting clear and enforceable Declarations of Trust.
• Registering ownership restrictions with the Land Registry.
• Advising on tax implications and related estate planning.
• Assisting with disputes where no declaration exists or where terms are contested.

We provide tailored advice to ensure that your interests are protected and that the legal documentation reflects your intentions.

Conclusion

A Declaration of Trust is an essential document for anyone buying or owning property with another person, especially where contributions are unequal or where outside financial help has been provided. It ensures clarity, avoids disputes, and protects each party’s investment.

While it may not be a legal requirement, failing to have a declaration in place can lead to costly and stressful disagreements later. With expert legal advice, you can ensure that your arrangements are properly documented and enforceable.

At Blackstone Solicitors, we are here to guide you through the process and provide the peace of mind that comes from knowing your property interests are secure.

How we can help

We have a proven track record of helping clients deal with the legal aspects of residential property law. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of property litigation services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/residential-property/

How to Contact Our Residential Property Solicitors

It is important for you to be well informed about the issues and possible implications of declaration of trusts. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.

To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Blog, News Tagged as

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