What is a Declaration of Trust?

A legal document outlining the ownership rights and the financial interests of a jointly owned property, a Declaration of Trust can be used by unmarried couples to set out each person’s share in the property and what will happen if the property is sold. They can also be used by friends or family members buying property together. A Declaration of Trust protects against potential disputes by ensuring everyone involved understands their financial commitment and entitlement.

By formalising ownership shares, a Declaration of Trust will protect each person’s investment and provide legal clarity if the property is sold or if someone wishes to transfer or sell their share in the future.

• To protect the financial interests of unmarried couples.
• When different amounts are put in for the deposit, mortgage payments, or upkeep of the property.
• If a family member or a third party provides money for the purchase and wants to ensure their investment is safeguarded.
• When a property is purchased as an investment by more than one person, the Declaration of Trust can specify how rental income or sale proceeds should be divided.

• Ownership shares – the percentage of the property each person owns.
• Division of sale proceeds – how the sale proceeds of the property should be split.
• Maintenance costs – how repair and maintenance costs will be shared.
• Exit clauses – what will happen if one person wants to sell their share.

As a legally binding document, a Declaration of Trust provides clear legal protection regarding each person’s financial interest in the property. As long as it has been prepared correctly, the agreement is enforceable.

A Declaration of Trust can be amended as long as all parties involved agree to the changes. The amendments must be documented and signed to ensure the changes are legally recognised.

While a Declaration of Trust does not change the terms of your mortgage, it is essential that your mortgage lender is aware of the arrangement, particularly if the ownership shares outlined in the declaration differ from the names on the mortgage. The lender may have specific conditions or requirements, and it’s always wise to disclose the existence of a Declaration of Trust when securing your mortgage.

A Declaration of Trust can be useful for calculating tax liabilities, such as determining who is responsible for paying tax on rental income in buy-to-let scenarios. The declaration provides evidence of who holds the financial interest in the property.

The cost will depend on the complexity of the situation and the amount of legal work involved. Use a solicitor to ensure that your Declaration of Trust is legally sound.

A Declaration of Trust itself does not trigger tax liabilities but the property transactions it relates to could do so. If there is a transfer of any part of the property to another party, Stamp Duty may be payable and CGT may apply on a sale or a transfer. Advice from an accountant should be obtained in this respect.

Marriage and civil partnership can have an impact on property rights and inheritance, so it is worth reviewing your Declaration of Trust if your relationship status changes. It’s always a good idea to seek legal advice to ensure your Declaration of Trust reflects your intentions and is in line with your new legal rights as a spouse or civil partner.

A Declaration of Trust will remain a valid legal document until the property is sold, the trust is terminated, or all the obligations laid out in the document are fulfilled. If no time limit is specified, it will continue until circumstances change that may legally end or alter it.

A Declaration of Trust will normally take precedence over a Will when it comes to how property is held and distributed. It does this because it defines the legal ownership of the property. It is best practice to seek legal advice to ensure both documents align.

A Declaration of Trust can be invalidated if it was not properly drafted or executed. For example, if it was made fraudulently or there is an error in the document. Changes in circumstances, such as  a sale of the property, can also nullify the trust.

It is highly recommended that you seek professional legal advice. A solicitor will be able to ensure the document is valid and protects your interests.

As leading family lawyers in Milton Keynes, we can advise you about Declarations of Trust and the ownership rights of jointly owned property. In addition to our head office in Milton Keynes, we also have solicitors in Bicester, Watford, and Central London. Talk to us in confidence and find out where you stand. Get in touch – we’re here to help.

This article is intended for the use of our clients and other interested parties. The information contained in it reflects the author’s view and is believed to be correct at the date of publication. However, it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional legal advice.