What is a declaration of trust and do I need one?

Key takeaways

• A declaration of trust is a legally binding document that outlines each party’s ownership rights and interests in a property

• It is commonly used when more than one person contributes financially to a property purchase

• This document clarifies how much of a property each person owns, the responsibilities of ownership, rights to occupy the property, responsibilities for maintenance and expenses, and procedures for selling or transferring ownership

• While you can create a declaration of trust without a solicitor, it’s advisable to use one to ensure the paperwork meets all legal requirements

• A declaration of trust may need to be registered with HMRC, especially when legal and beneficial ownership differ

What is a declaration of trust?

A declaration of trust is a legally binding document that outlines the ownership rights and interests of all parties in a property.

It's often used if there are a few people putting money towards a property purchase, rather than just one.

There can be several reasons why you might need a declaration of trust when buying a property. Here are three of the most common examples:

What is included in a declaration of trust?

The details of the document will depend not only on the type of property being bought but also who is putting money towards it. Most will include the following:

• Name of all parties involved

• Each party’s financial contributions

• Each party's share of ownership

• Mortgage responsibilities and repayments

• Rights to occupy the property

• Responsibilities for maintenance and expenses

• Procedures for selling or transferring ownership

• Procedures for resolving disputes

A declaration of trust helps prevent misunderstandings or disputes by providing clarity on the ownership structure.

There are certain situations where one of these documents is particularly important. This includes cohabiting couples buying together, and friends, or family members purchasing property together, ensuring fair treatment and protection of each party's investment.

Do I need a solicitor for a valid declaration of trust?

While it's possible to create a declaration of trust without a solicitor in the UK, it's highly recommended that you seek legal advice.

The advantages of using a solicitor include:

• Ensuring the document adheres to legal requirements

• All parties' intentions can be accurately reflected

• All potential future scenarios can be considered

• Guidance can be given on drafting, interpreting complex legal language, and registering the declaration if necessary

• It helps safeguard against misunderstandings or disputes, providing peace of mind and legal validity to the declaration of trust

When is the right time to put a declaration of trust in place?

The best time to put a declaration of trust in place is before completing a property purchase. This gives everyone involved time to think about the decisions they are making and also time to formally document what will happen when the property purchase is complete. With one of these agreements, all parties’ contributions and ownership terms can be agreed from the outset and legally recorded

How much does it cost to get a declaration of trust?

Fees for a declaration of trust will vary between firms and also depend on the complexity of the deed. If it’s a relatively easy transaction, between two partners who live together for example, it will be cheaper than if there are several parties putting up different amounts of money.

As a guide, you could expect to pay between £150 and £500 for a simple agreement, rising to £750 -£1,200 or more for complex arrangements.

Before you hire a solicitor, always look at a few different prices – including the option of drawing up a declaration of trust yourself if this is something you feel comfortable with. When choosing a firm, it’s important to look at all of the fees involved, and to check out previous client reviews.

Does a declaration of trust sever a joint tenancy?

Yes, a declaration of trust does sever a joint tenancy, leading to two or more individuals owning the property as tenants in common, rather than a joint tenancy.

Owning property as tenants in common means each owner has a specific share. When one owner dies, their share goes to their chosen beneficiaries, not automatically to the other owner or owners.

By contrast, owning property as joint tenants grants equal rights, and on death, the property passes automatically to the surviving owner or owners.

If I pay for all the building work upgrades to a house can I own a bigger share of the property?

If a declaration of trust is in place, it can be amended to reflect the initial investment you have put into property as long as all parties agree.

Additionally, a supplementary declaration of trust can be made that refers to the original document, outlining what has happened since, and what the shares are now.

Can a declaration of trust be backdated?

It might be possible to backdate a declaration of trust, but only in specific circumstances and it would be wise to seek legal advice before proceeding. To be enforceable, one of these documents must accurately represent the parties’ intentions at that time – and comply with legal requirements.

What impact does a declaration of trust have if one of the property owners dies?

A declaration of trust can have an influence on the administration of the estate when one of the property owners passes away.

Because a declaration of trust severs any joint tenancy that might have been in place when it is set up, the deceased's share of the property instead passes to their named beneficiary in the will.

Without a will, the rules of intestacy apply. This may mean someone’s loved ones do not end up benefitting in the way that that person would have wanted them to. Importantly, the deceased's share doesn't automatically go to other owners, unless it's stated in the deceased's will.

This means unmarried couples owning as tenants in common need wills in place to prevent conflicts, as intestacy rules may lead to the deceased's partner not inheriting their share, potentially causing disputes.

Will a declaration of trust affect my mortgage?

While many mortgage lenders require the declaration of trust be reported, it is rare that lenders have any issue with this. It should not affect your mortgage itself, but you should Let let your conveyancer or solicitor know if you have one of these documents in place.

You must also inform you lender if ownership or financial contributions change, as this could impact things such as liability and repayment responsibilities.

Other useful guides

• How to get a mortgage in principle

• Do I need a mortgage broker?

• What mortgage can I afford?

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