Make it clear who owns what.
When people buy or own a property together, their financial interests are not always equal. One owner may contribute more to the deposit, the owners may pay different amounts towards the mortgage, or a family member may provide money towards the purchase.
A Declaration of Trust records the beneficial ownership of the property. It can establish what each person owns, protect individual contributions and set out how the proceeds should be divided if the property is sold.
At Laurus, we prepare Declarations of Trust tailored to the property, the contributions being made and the intentions of everyone involved. We help you think through what should happen if contributions change, the property rises or falls in value, one owner wants to sell or your circumstances change.
How can we help?
We are buying a property together
We can prepare a Declaration of Trust recording how your deposit, mortgage contributions and ownership shares should be treated.
Where possible, the terms should be agreed before exchange of contracts.
We own the property in unequal shares
We can record fixed ownership percentages or prepare an arrangement that protects different initial contributions.
A family member is contributing money
We can record a family member’s beneficial interest where their contribution is intended to give them a share in the property.
If the contribution is repayable, it is a loan and will require a separate loan agreement, which we can draft, rather than simply being recorded as a beneficial interest.
We need to review an existing arrangement
If your contributions or intentions have changed, we can review the existing Declaration of Trust and advise whether a formal variation or replacement document is required.
Speak to a Declaration of Trust solicitor
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What is a Declaration of Trust?
A Declaration of Trust, sometimes called a Deed of Trust, is a legally binding document that records the beneficial ownership of an asset.
For a property, legal ownership is shown by the names registered at HM Land Registry. Beneficial ownership concerns the underlying financial interest: who is entitled to the equity, rental income or proceeds when the property is sold.
A Declaration of Trust can record beneficial interests that are different from, or more detailed than, the position shown by the legal title.
Depending on the circumstances, it may set out:
- how much each person contributed to the deposit;
- each owner’s beneficial share in the property;
- whether initial contributions should be returned before the remaining equity is divided;
- whether ownership shares are fixed or calculated using an agreed formula;
- whether specified mortgage payments affect the ownership shares;
- how sale proceeds should be divided;
- what should happen if the property falls in value;
- how agreed improvements or additional contributions will be treated;
- what happens if an owner wants to sell;
- whether another owner has the right to buy that person’s share;
- how the property will be valued; and
- how disagreements concerning the agreed arrangements should be addressed.
The appropriate terms depend on the contributions and what the parties intend. A generic document may not account for changes in value, unequal mortgage payments or the possibility that there will be insufficient equity to repay everyone’s original contribution.
When might you need a Declaration of Trust?
You are contributing unequal deposits
If one person provides more of the deposit, the owners may not want the property’s equity to be divided equally.
A Declaration of Trust can protect the different contributions and record how the balance should be shared. For example, the owners might agree that their respective deposits will be returned first when the property is sold, with any remaining equity divided equally.
Alternatively, they may decide that each person will own a fixed percentage of the property from the outset.
You will make different mortgage payments
One owner may pay more towards the mortgage, or the amount paid by each owner may change over time.
The Declaration of Trust can state whether those payments will affect the beneficial shares. If the shares are intended to change, the document must provide a clear and workable method for calculating them.
The arrangement between the owners does not alter their obligations to the mortgage lender. Borrowers who are jointly liable may each remain responsible to the lender for the entire mortgage debt.
You are buying with an unmarried partner
A Declaration of Trust can give cohabiting couples clarity about their respective interests in their home.
This is important because unmarried couples do not have the same legal framework as married couples or civil partners if they separate. Paying towards a property does not, by itself, always make the parties’ intended ownership arrangements clear.
A Declaration of Trust focuses on ownership of the property. If you need to document wider financial arrangements between you, we can also advise on a separate [cohabitation agreement].
You are buying with friends or relatives
Friends, siblings and other family members may contribute different amounts or have different expectations about how long they will own the property.
A Declaration of Trust can record their shares and establish what should happen if one owner wants to sell or be bought out. Agreeing this at the beginning can reduce uncertainty later.
A family member is contributing to the purchase
Money provided by parents or other family members may be:
- an outright gift;
- a repayable loan; or
- an investment giving the contributor a beneficial interest in the property.
These are legally different arrangements.
A Declaration of Trust may be used where the family member is intended to have a beneficial interest in the property or they want to make an outright gift to assist with the purchase. If the money must be repaid, a separate loan agreement will be required to record the debt and its repayment terms.
The arrangement must be disclosed accurately to the conveyancer and mortgage lender. The lender’s requirements should be established before the documents are finalised.
You want to formalise an existing arrangement
A Declaration of Trust can sometimes be made after a property has been purchased to record the owners’ current intentions.
Creating or changing beneficial interests after completion may have mortgage, tax or Land Registry consequences. Advice should be taken before any interest is changed or a document is signed.
How can ownership shares be structured?
There is no single formula suitable for every Declaration of Trust. The structure should reflect how the owners intend to share contributions, increases in value and financial risk.
Fixed percentage shares
The owners may hold the beneficial interest in stated proportions, for example, 60% and 40%.
Those percentages will generally determine how the relevant equity is divided when the property is sold, subject to the detailed terms of the Declaration.
Return of initial contributions
The owners may agree that specified contributions, such as their deposits, will be returned first. The remaining equity can then be divided equally or in other agreed proportions.
The Declaration should also explain what happens if the property is sold for less than expected and there is insufficient equity to return those contributions in full.
Calculated or changing shares
Where contributions will vary, the owners may want their interests to be calculated using an agreed formula.
This can take account of specified payments, but the formula must define which contributions count and how they will affect the final division of equity. It should remain clear and workable over the period of ownership.
We will explain the effect of the available structures and help you choose an arrangement that reflects what you intend.
What should happen if the property is sold?
A carefully drafted Declaration of Trust should make clear how the net sale proceeds will be divided.
This may involve:
- repaying the mortgage and sale costs;
- returning specified initial contributions;
- accounting for any agreed additional contributions;
- dealing with a reduction in the property’s value; and
- dividing the remaining equity in agreed proportions.
The document can also establish a process to follow if one owner wants to sell but another wants to remain in the property. This might include notice requirements, an agreed valuation method and an opportunity for one owner to buy the other’s beneficial share.
These provisions cannot anticipate every future event, but they can provide a clear starting point and reduce the risk of disagreement.
When should the Declaration of Trust be prepared?
Where possible, the terms should ideally be agreed before exchange of contracts of the property purchase.
This allows each person to understand their position before becoming legally and financially committed. It also gives the conveyancer and mortgage lender an opportunity to consider the proposed arrangement.
If you already own the property, a Declaration of Trust may still be possible. However, any change to the beneficial ownership should be considered carefully before it is documented.
A Declaration of Trust should accurately reflect the parties’ genuine intentions and should not be backdated.
Does a Declaration of Trust affect the mortgage?
A Declaration of Trust records the arrangements between the beneficial owners. It does not change their obligations to the mortgage lender.
Where borrowers are jointly liable, the lender may be entitled to recover the full mortgage debt from either borrower, regardless of how the owners have agreed to divide payments or equity between themselves.
Can a Declaration of Trust be changed?
A Declaration of Trust may be varied or replaced if all relevant parties agree.
A change might be needed where:
- the owners agree to change their respective shares;
- one owner makes a substantial additional contribution;
- the mortgage or payment arrangements change;
- one owner transfers their interest;
- another person acquires an interest in the property; or
- the original Declaration no longer reflects the owners’ intentions.
Any change should be documented formally. The existing signed Declaration should not be amended by hand.
Changes to beneficial ownership can have mortgage, tax and Land Registry implications. These should be considered before a variation or replacement Declaration is completed.
What happens if an owner dies?
The answer depends on the form of co-ownership, the terms of the Declaration of Trust and the deceased owner’s Will.
If owners hold distinct beneficial shares as tenants in common, a deceased owner’s share will usually pass under their Will or, if they have no valid Will, under the intestacy rules. It will not pass automatically to the surviving owner.
For this reason, owners making a Declaration of Trust may also need to review their [Wills] to ensure their property interests pass as intended.
Speak to one of our lawyers before your purchase completes or as soon as you decide that your ownership arrangements need to change.
Frequently Asked Questions
Legal ownership is shown by the names registered as proprietors at HM Land Registry. The legal owners are responsible for dealing with the legal title.
Beneficial ownership concerns the underlying financial interest in the property, including entitlement to equity, rental income or sale proceeds.
A Declaration of Trust records the beneficial ownership agreed between the parties.
A properly prepared and executed Declaration of Trust is intended to be legally binding. Its effect will depend on its terms, how it was executed and the surrounding circumstances.
Each party should understand the document before signing it. Separate legal advice may be necessary where their interests differ.
It is possible for one solicitor to prepare the Declaration where the parties have a common objective and fully agreed instructions.
Where the parties’ interests conflict or they need advice about their individual positions, separate legal representation may be required. We will explain this at the outset.
The terms are often used interchangeably in relation to a document recording the beneficial ownership of property.
The document’s legal effect depends on its contents and execution rather than its title.
No. A Declaration of Trust records beneficial ownership of a particular asset, usually a property.
A cohabitation agreement can cover wider financial arrangements between an unmarried couple. Depending on the circumstances, both documents may be appropriate and should be consistent.
A Declaration of Trust and a loan agreement perform different functions.
A Declaration of Trust records beneficial ownership. If money provided by a family member is repayable, a separate loan agreement will be required to record the debt and its repayment terms.
Both documents may be needed if the family member is making a loan and also acquiring a beneficial interest. The arrangement must be consistent with the mortgage lender’s requirements.
A Declaration of Trust records beneficial ownership, which is different from the legal ownership shown at HM Land Registry.
Depending on the ownership structure, a restriction or another Land Registry application may be appropriate. We will advise on any related steps.
Potentially, yes. Owners can sometimes document or change their beneficial interests after completion.
However, doing so may have mortgage, tax and Land Registry consequences. These should be considered before the Declaration is signed.
Potentially, yes. Owners can sometimes document or change their beneficial interests after completion.
However, doing so may have mortgage, tax and Land Registry consequences. These should be considered before the Declaration is signed.
A Declaration of Trust can not be backdated. It should accurately record the arrangement being declared when it is made.
If the parties want to document an earlier understanding or an existing ownership position, legal advice should be taken on how to record that accurately.
That depends on the terms of the Declaration.
The owners can agree whether specified improvement costs will affect their beneficial shares, be repaid on sale or have no effect on ownership. Paying for work does not necessarily change an owner’s share automatically.
The Declaration should state how any available equity, or a shortfall, is to be dealt with.
For example, the owners may agree that losses are shared in the same proportions as their beneficial interests. If initial contributions are to be returned first, the document should explain what happens when there is insufficient equity to return them in full.
The position will depend on the Declaration of Trust, the form of ownership and the applicable law.
A tailored Declaration can establish an agreed procedure to follow if one owner wants to sell. It cannot prevent a party from seeking a court order where no agreement can be reached.
It can record what the owners have agreed between themselves, but it does not usually alter their obligations to the lender.
Joint borrowers may each remain liable to the lender for the entire mortgage, regardless of the payment arrangement recorded in the Declaration.
Creating or changing beneficial interests may have tax consequences. The position depends on the property, the mortgage debt, the relationship between the parties and the nature of the transaction.
Tax advice may be required before the Declaration is completed. The document should reflect the arrangement that has actually been agreed rather than being used to assume a particular tax outcome.
No document can guarantee that a dispute will never arise.
However, a carefully prepared Declaration can reduce uncertainty by providing clear evidence of the ownership and sale arrangements agreed between the parties.
It is helpful to have:
- the property address and title information, if available;
- the purchase price and mortgage arrangements;
- details of the legal owners;
- details of each person’s deposit and other contributions;
- the proposed ownership shares;
- details of any money provided by a family member or third party;
- confirmation of whether that family contribution is a gift, loan or investment;
- information about how future mortgage payments will be made;
- details of any existing Declaration of Trust; and
- your intentions if the property is sold or an owner wants to leave.
You do not need to have resolved every point before contacting us. We can help you work through the available options.
