A Declaration of Trust is a document, made usually at the time of purchasing a property that is designed to protect each person’s financial contribution towards the property. The document will describe the different shares held in the property and what each person will be entitled to, should the property be sold. A Declaration of Trust can also be put in place after completion of the purchase, even if you have owned the property for many years.

If you have a Declaration of Trust, this will mean you hold the property as ‘Tenants in Common’, so if one of the owners were to pass away, their share of the property would be distributed as per their Will. Therefore, it is extremely important everyone involved has an up-to-date Will in place, if you are considering entering into a Declaration of Trust. This contrasts with holding a property as ‘Joint Tenants’, where both parties are considered to hold the property on a 50:50 basis and should one of you pass away, the property will automatically be inherited by the other party. It is important to carefully consider which option is right in your circumstances, our probate lawyers can advise you as to the potential consequences and/or advantages to each option as well as assist with drafting your Will. It may also be useful to discuss your options with your accountant, as how you hold a property can effect your stamp duty land tax, capital gains, inheritance, and income tax liabilities.

You may want to consider entering a Declaration of Trust if:

• You are contributing unequal sums towards the purchase price,
• You are buying with a friend or relative who you do not intend to have joint finances with,
• You wish to lessen the risk of disagreements and uncertainty in relation to the distribution of the net sale proceeds, upon the sale of the property,
• One of you is receiving a gifted deposit and the person gifting the money only intends for one of you to benefit from the funds.

A Declaration of Trust can include:

• The amount of money each party has contributed towards the purchase price,
• The amount each party will contribute to the mortgage repayments and/or other outgoings,
• The percentage of the beneficial interest in the property that each party will own,
• How much each party may be entitled to from the sale of the property,
• Any other information you may feel is relevant – to be discussed with your solicitor.

For example, two first time buyers, Annie and Ben, are buying a property worth £200,000. Annie contributes £30,000 and Ben contributes £15,000, and the rest of the money is to be raised via a mortgage. A Declaration of Trust could stipulate that upon the sale of the property Annie and Ben will first receive their initial contributions back and then the remaining sale proceeds will be divided evenly.

Or alternatively, if Ben contributes larger sums towards the mortgage and other expenses, it could be stated that Ben would own a higher percentage of the beneficial interest of the property than Annie.

A Declaration of Trust will specify that the mortgage will need to be settled prior to any party receiving their monies.  

The parties can agree to terminate the Declaration of Trust if their circumstance change. If one party needs to enforce the Declaration, the document will be considered by a court, though there is no obligation for them to honour the terms of the deed.

The Declaration of Trust will not be held with HM Land Registry, so it is extremely important the parties hold a copy in a safe place. The Land Registry will enter a Restriction on the Title Register that will act as an indication there is further documentation that needs to be considered before the property can be sold, but a solicitor will not automatically know of the existence of a Declaration of Trust, or its content. It is therefore vital to tell your solicitor about the document as soon as possible.

In conclusion, a Declaration of Trust can decrease the risk of any misunderstandings from the start of your agreement to purchase a property with another person. You can contact any of the lawyers in our Property Department to discuss any questions you may have.