Property Law Unpacked – We're buying a home together, who actually owns what?

When people buy or own a property together, their financial interests are rarely equal. One person may put in more of the deposit, the owners may pay different amounts towards the mortgage, or a family member may help with the purchase. The names registered as owners at HM Land Registry do not always tell the full story of who is entitled to what.

A declaration of trust is the document that records that fuller picture. It sets out the beneficial ownership of a property: who really owns what, how contributions are protected, and how the proceeds should be divided if the property is ever sold.

In this edition of Property Law Unpacked, we explain what a declaration of trust does, when it matters, why it can be put in place alongside your purchase without slowing anything down, and how our conveyancing lawyers work hand in hand with our estate planning lawyers to make sure clients are properly protected.

Property law draws a distinction that catches a lot of people by surprise.

Legal ownership is shown by the names registered as proprietors at HM Land Registry. Those are the people responsible for dealing with the legal title.

Beneficial ownership is different. It concerns the underlying financial interest in the property: who is entitled to the equity, to any rental income, and to the proceeds when the property is sold.

Most of the time people assume these two things line up neatly, and often they do. But they do not have to. Two people can be joint legal owners while holding very different financial interests underneath. A declaration of trust, sometimes called a deed of trust, is the document that records the beneficial ownership and, where needed, sets out something more detailed than the title alone can show.

When a declaration of trust earns its place

A declaration of trust is not needed on every purchase, but there are a handful of common situations where it does really work.

You are contributing unequal deposits

If one person provides more of the deposit, the owners may not want the equity to be divided equally when the property is sold. A declaration of trust can protect those different contributions, for example by returning each person's deposit first and dividing the balance equally, or by fixing each owner's percentage from the outset.

You are buying with a partner you are not married to

Unmarried couples do not have the same legal framework as married couples or civil partners if they separate. Paying towards a home does not, by itself, make your intended ownership arrangements clear. A declaration of trust gives cohabiting couples certainty about their respective interests.

You are buying with friends or relatives

Friends and siblings may contribute different amounts, or have different plans about how long they want to stay involved. A declaration of trust records their shares and sets out what happens if one owner wants to sell or be bought out.

A family member is helping with the purchase

Money from parents or relatives can be an outright gift, a repayable loan, or an investment giving a share in the property, and these are legally different arrangements. Where it is a gift, a lender will usually want a signed gifted deposit form, but that need not mean the money is unprotected. A declaration of trust can record, between the owners, that the gifted sum belongs to the child who received it and is returned to them first on a future sale. We cover this scenario in detail in our separate edition, We are the Bank of Mum and Dad, can we protect our gift?

Priya and Tom's Story

Priya and Tom are buying a flat for £400,000. Priya puts in a £60,000 deposit and Tom puts in £20,000, and they take a joint mortgage for the rest. The flat will be in their joint names.

Rather than let the equity divide equally by default, they ask for a declaration of trust. It records that, on a future sale, once the mortgage and sale costs have been paid, Priya receives her £60,000 and Tom his £20,000 first, and anything left is then split equally.

A few years later they sell. After repaying the mortgage and costs, there is £160,000 of net equity. Because of the declaration of trust, Priya takes back her £60,000 and Tom his £20,000, and the remaining £80,000 is divided equally, so they each receive £40,000 on top. Priya ends up with £100,000 and Tom with £60,000.

Without the declaration of trust, that £160,000 might simply have been treated as joint equity and split £80,000 each, and Priya's larger contribution would have quietly disappeared into an equal division.

It runs alongside your purchase and will not hold it up

This is worth stating plainly, because it is the concern that comes up most often, and the one estate agents raise on behalf of their buyers. Putting a declaration of trust in place does not slow your move down.

The work is done alongside the conveyancing rather than in a queue behind it. Your conveyancer keeps the transaction moving through its usual stages while the document is prepared in the background. Neither one waits on the other.

Where possible, the terms should be agreed before exchange of contracts, so that everyone understands their position before becoming legally and financially committed. That timing sits comfortably within a normal purchase. In practice it means having a short, focused conversation early on, then letting the drafting happen quietly in parallel while the rest of the transaction carries on as normal.

What a declaration of trust does not do

It is just as useful to be clear about the limits.

A declaration of trust records the arrangement between the beneficial owners. It does not change anyone's obligations to the mortgage lender. Where borrowers are jointly liable, the lender will still be entitled to recover the whole of the mortgage debt from either of them, whatever the owners have agreed between themselves about who pays what. The document sorts out the position between the owners. It does not rewrite their relationship with the lender.

Where it fits in the bigger picture

At Laurus, declarations of trust are prepared by our Legacy lawyers, the team that also looks after wills, trusts and estate planning, working hand in hand with the conveyancing lawyers handling your purchase. Your conveyancer manages the transaction and knows the deposits, the contributions and the lender's requirements. Our estate planning lawyers take that same information and make sure your ownership is recorded and protected for the longer term. The two sides talk to each other, so nothing falls through the gap between the purchase and the planning.

That pairing is deliberate, because a declaration of trust rarely sits entirely on its own. If you own a property as tenants in common, each of you holds a distinct beneficial share. When one owner dies, that share passes under their will, or under the intestacy rules if there is no valid will. It does not pass automatically to the surviving owner. So the way you hold your home and the way your will is written need to point in the same direction, or your property may not end up where you intended.

This joined up thinking is what we mean by legal wellbeing: the different parts of your legal life, your purchase, your ownership arrangement and your will, working together rather than in isolation. Lining them up while you are buying is far easier than untangling them later.

How Laurus can help

We regularly advise buyers, couples and families who want clarity about who owns what. In particular, we can:

• explain whether a declaration of trust is the right tool for your situation
• draft a declaration of trust that reflects your intentions clearly
• work alongside your conveyancer so the document is ready in step with your purchase
• review or create your will at the same time, so your property passes as you intend

If you are buying with a partner, a friend or a family member, or someone is helping you onto the ladder, a short conversation early on can give everyone peace of mind and keep your move firmly on track. 

For tailored advice on declarations of trust or family gifts towards a property purchase, contact our Legacy team on 020 3146 6300 or enquiries@lauruslaw.co.uk

About Property Law Unpacked

Property Law Unpacked is our practical guide to buying and selling property in England and Wales. Each article answers a real question our clients ask, breaking down the legal process in clear, straightforward terms so you can move forward with confidence.