DECLARATION OF TRUST (ALSO KNOWN AS DEED OF TRUST)

If you have paid money towards the purchase of a property, a Declaration of Trust can help protect your deposit or confirm the share of the property that you hold. 

When buying a property, in addition to deciding on the size and location, you must also consider how you are going to pay for it. On top of the purchase price, you will need to pay solicitor fees and for searches/surveyors. If you can fund the purchase yourself or if you can contribute equally with those you are buying with, then it can be straightforward if you decide to sell.  

As is often the case, you may require financial support from a friend or relative to buy your own home or you may contribute more towards the purchase than those you are buying with.  When the sale is completed, the land registry will only record the legal title and does not record the individual contributions.  This can cause disputes when the property is later sold.

Declaration of Trust 

A Declaration of Trust is a legal document that records details of your purchase and sets out what will happen if the property is sold. This can help remove any uncertainty and provide protection to all parties involved.

Here are a few examples where a Declaration of Trust can be useful: 

A Couple Purchase a Property Together as Joint Tenants 

One partner pays £40,000 towards the deposit and the other pays £20,000; the rest of the purchase is funded by a mortgage.  

Following the breakdown of their relationship, the property is sold and the two legal owners are entitled to an equal share of the sale proceeds. 

In this example, a Declaration of Trust could confirm that when the property is sold, they each get their initial deposits and the remainder is divided equally between them. 

A Parent Supports Their Child in Buying a Property

A parent pays £20,000 towards the deposit of their child’s first home, which they are buying with their spouse. The married couple pay a further £10,000 each towards the property that they will own as tenants in common. 

Following a separation, the property is sold. In the absence of a Declaration of Trust, they are presumed to hold an equal share in the property and therefore receive an equal share of the sale proceeds.   

A Declaration of Trust could protect the interest of the parent and confirm that if the property is sold, the parent will receive their contribution and the remainder is divided equally between the married couple. 

Two Friends Purchase a Property in Unequal Shares 

The first friend pays 75% towards to purchase price and the second pays 25%. They own the property as tenants in common. 

As the Land Registry will only record the names of the legal owners, in the absence of a Declaration of Trust, they are presumed to hold an equal share in the property.

By making a Declaration of Trust, the friends could set out their individual shares in the property. That will ensure each friend gets their initial contribution but also their respective shares of any profit; 75% to the first friend and 25% to the second.