Declaration of Trust for Property in England and Wales

In England and Wales, a declaration of trust can record who has the beneficial interest in a property and how the sale proceeds are to be shared. It is different from a mortgage, a loan guarantee and a Scottish debt trust deed.

Property and trust law differs across the UK. This guide concerns declarations of trust for land in England and Wales; get advice in the relevant jurisdiction before signing.

In this piece, we’ll cover:

• What a Deed of Trust is and how it works.
• The difference between a deed of trust and a mortgage.
• When and why you might need a deed of trust.
• Things to think about before using a deed of trust.
• How ownership arrangements interact with borrowing and lender rights.

A declaration can have lasting effects on ownership, inheritance and tax. A solicitor should explain how the document fits the intended contributions and arrangements.

What is the Deed of Trust?

A declaration of trust records how property is held for the people entitled to its benefit. The registered legal owners may hold the land as trustees for themselves, for others, or both. It is not a general guarantee that a property deal is fair.

It is often prepared when buying property together or recording unequal contributions. It can also be relevant later, but changing interests after purchase may require lender consent, registration steps and tax advice.

How Does it Work?

Common situations in which legal advice about a declaration may help include:

1. Co-owners want to record their beneficial shares and how sale proceeds should be divided. See related guidance.
2. Someone contributes funds and the parties need to clarify whether the contribution is a gift, loan or ownership interest.

The declaration may deal with beneficial shares and arrangements between the parties. It does not automatically change the mortgage contract or limit what the lender can recover from its borrowers.

Beneficial joint ownership can take different forms:

• Beneficial joint tenants have equal rights to the whole property and survivorship; they do not hold separate percentage shares to leave by will.
• Beneficial tenants in common hold separate shares, which can be equal or unequal and can pass under a will. Legal title is still held under the rules for co-ownership.

Registered co-owners commonly act as trustees of the land themselves. An additional independent friend or family member is not always required. Being a trustee does not automatically make someone the borrower’s mortgage guarantor.

What Does the Declaration of Trust Include?

The declaration is flexible in its format. It can include different things which the owners might want to address. However, the usual main points or contents of trust deed are as follows: 

1. The property, legal owners and people entitled to the beneficial interests.
2. The title details and any registration or restriction required.
3. Contributions to the deposit and purchase costs, and whether money is a gift, loan or equity contribution.
4. How the parties will meet costs and mortgage payments between themselves, subject to the lender’s separate rights.
5. The beneficial shares or agreed formula for distributing net proceeds, and arrangements for sale or a dispute.

When to Get a Deed of Trust?

Discuss the intended ownership and contributions with the conveyancer before committing to the purchase where possible. The right document depends on the circumstances; a declaration is not necessary or suitable for every transaction.

A bit of sound legal advice might be needed to comprehensively protect your interest, so it would be better to get an advisor. 

A professionally drafted deed can help avoid unclear or ineffective provisions. The document must satisfy the relevant legal formalities; professional advice is particularly important for unequal contributions, other beneficiaries or borrowing.

Fees depend on the work, complexity and adviser. Obtain a written quote rather than relying on a universal £1,000 figure.

But you can offset some of the costs considerably by getting well-prepared before you consult a legal advisor.

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Buying Property with Someone’s Help

If another person helps fund the purchase, establish whether they are making a gift, lending money or acquiring an ownership share. These have different consequences and may need different documents.

A lender may require a loan agreement, a legal charge or a guarantee. A declaration of trust should not be presented as an automatic substitute for those arrangements.

A trustee does not automatically become personally liable for the buyer’s mortgage if the buyer defaults. Liability depends on the mortgage, any guarantee and other legal obligations actually undertaken.

Repaying a mortgage releases the lender’s security through the applicable process; it does not automatically end a separate declaration of beneficial ownership or transfer the property to a different person.

Signing a declaration does not necessarily transfer registered legal title to a new trustee. Any intended transfer, registration, lender consent or tax consequence must be addressed separately with the conveyancer.

Buying Property as Joint Owners

A declaration can record how co-owners hold beneficial interests, particularly where shares differ. It does not turn beneficial joint tenants into percentage owners without the necessary legal steps.

Co-owners commonly appear on the registered title and hold the legal estate as trustees. They do not have to choose one sole legal owner merely because their beneficial shares differ.

Trustees must act in accordance with the trust and their legal duties. The parties should understand who controls decisions, who benefits and how disagreements will be handled.

On a sale, the declaration can help establish how net proceeds are divided after mortgages, costs and other prior rights are dealt with. Third-party rights and the conveyancing rules still matter.

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Things to Consider Before Using Declaration of Trust

It can be a very good way to protect your interests in the property, but you need to keep in mind some things before signing a trustee deed:

1. Check whether the arrangement needs mortgage-lender consent and how costs, payments and a possible sale will be managed.
2. Ensure all parties understand the beneficial shares, decision-making arrangements and consequences of separation, death or a dispute.

Changing or ending a trust requires the appropriate legal authority and formalities. The consent needed can depend on all beneficiaries, capacity and other rights; a simple agreement between some parties may not be enough. Obtain advice on registration and tax consequences before making changes.