A broker’s guide to Declarations of Trust
Jill Stackhouse is Declarations of Trust manager at O’Neill Patient
When people are caught up in the excitement of purchasing a property, especially when it is a couple setting up home together for the first time, the last thing they think of is how they are going to hold the property on paper.
But if things go sour, this is something they wish they had thought about in advance, so as to avoid the stress, and the cost in terms of both time and money of settling through the Courts.
It is important to remember that there is a difference between the legal interest and the beneficial interest. While legal ownership reflects who is named on the mortgage and the title at the Land Registry, beneficial ownership is an interest in the economic benefit of the property.
Parties who wish to hold the property in trust for each other, which is an automatic presumption for married couples, will choose to own the property as ‘joint tenants’, jointly owning 100% of the property.
This can be achieved by simply ticking a box on their conveyancers’ forms. In the event of the death of one party, the other party still owns 100% of the property.
In other circumstances, however, parties may wish to split that beneficial ownership, perhaps to protect a gifted deposit, or to reflect differing contributions to the deposit or to the ongoing costs.
For buy-to-let properties, there is also the opportunity to make significant tax savings, taking advantage of separate tax allowances, especially where one party is a lower-rate taxpayer.
In these cases, the parties can elect to be classed as ‘tenants in common’. Tenants in common who are presumed to own the property on a 50:50 basis, but if they wish to make a different arrangement they will need to have a detailed record of their beneficial interest and agree how this will be divided between them.
A Declaration of Trust, also sometimes known as a Deed of Trust, is the legal means by which this can be achieved. Ultimately, it is up to the parties themselves to decide how the beneficial interest is split between them, depending on how much each is contributing to the overall ‘pot’ and how they want this to be reflected in any eventual division of the proceeds. The percentages can be as extreme as 99:1 if that is what is required.
While brokers are regulated to recommend financial products responsibly to their clients, a Declaration of Trust is another way to responsibly advise them on something they may not have even considered.
Depending on the complexity of the case, these declarations generally cost less than £500 – but can end up saving thousands in court and lawyers’ fees in the event of a subsequent dispute.
Clearly, the issue needs to be handled sensitively, as nobody wants to think about things going wrong when they are buying a home together, but it could end up being one of the best bits of advice they ever get.