A deed of trust, usually called a declaration of trust in England and Wales, is a written agreement between people who buy a property together. It records who owns what share of the property’s value and what happens to the money if the property is sold. It is most useful when co-owners put in different amounts, when family members help with the deposit, or when friends or business partners buy together.
This guide covers England and Wales. Scotland and Northern Ireland have different rules. In the United States, “deed of trust” means something else: a document that secures a loan, much like a mortgage.
What does a deed of trust do?
A deed of trust sets out who is entitled to what from a jointly owned property. It is a separate legal document between the owners. It does not replace the mortgage or change the names recorded as legal owners on the title register.
Legal ownership and beneficial ownership
Legal ownership concerns the people named as registered proprietors on the title. Where there is more than one legal owner, they hold the legal estate jointly rather than in separate legal shares. Beneficial ownership concerns who is entitled to use the property or receive its value, including money from a sale. Those beneficial interests can be divided equally or unequally, and a declaration of trust can record the agreed shares.
Joint tenants and tenants in common
Beneficial joint tenants have equal rights to the whole property and do not hold separate beneficial shares. If one owner dies, their interest normally passes automatically to the surviving joint owner or owners.
Tenants in common hold separate beneficial shares, which may be equal or unequal. A person’s share does not automatically pass to the other owners when they die. It may instead pass under their will or the intestacy rules.
A declaration of trust is commonly used when owners hold the beneficial interest as tenants in common, particularly where their shares are unequal or the arrangement requires more detail than can be included in the property transfer.
When a deed of trust is worth having
A deed of trust is worth considering whenever the owners’ financial positions in the property are not identical. Common situations include:
- One person contributes a larger deposit or pays more of the mortgage.
- Friends, relatives or business partners are buying together, including as an investment.
- Unmarried partners are buying a home together.
- One owner expects to pay for major improvements.
Gifts and loans from family
Family help with a deposit can be a gift, a loan or a way of buying a share in the property. Each has different consequences, and confusion is a common source of disputes later. A declaration of trust can record which it is, along with any repayment terms.
Money that is expected to be repaid should not be described as a gift. A loan, repayment agreement or beneficial interest may affect a mortgage lender’s decision, and some lenders may not accept them. Any such arrangement should be disclosed to the lender and the conveyancer.
Unmarried couples
English law does not recognise “common-law marriage”. If you are not married or in a civil partnership, your rights in a shared home depend on the title and on what the courts decide you intended. Without a written agreement, a court looks at what you said and did over time, which can be hard to prove. A properly prepared declaration of trust provides written evidence of the owners’ intentions at the time it is signed.
Buying through Shared Ownership
In England, Shared Ownership is a leasehold arrangement in which you buy a share of a home and usually pay rent on the remaining share. Arrangements in Wales may differ, so check the position with your conveyancer. If two people are buying together, ask your conveyancer how their beneficial interests can be recorded.
Any declaration of trust must work alongside the Shared Ownership lease, the mortgage conditions and any requirements imposed by the landlord or lender. It cannot give the buyers rights that conflict with those documents.
What a deed of trust usually includes
Every deed should be tailored to the owners, but most cover the following.
Ownership shares
The deed states each person’s beneficial share, usually as percentages. It can also explain whether later contributions, such as a lump-sum mortgage payment or the cost of agreed improvements, will affect those shares. The deed should state how any adjustment is calculated and what evidence is required.
Contributions and running costs
The deed can record who contributed what to the deposit and purchase costs, and how mortgage payments, bills, insurance, repairs and improvements will be shared. It can also say what happens if someone falls behind.
Selling or buying someone out
The declaration can explain how a decision to sell will be made, how the property will be valued and how the proceeds will be divided after the mortgage and selling costs have been paid. It can also set out how one owner can buy out the other, including timescales and valuation.
Disagreements
Many deeds require the owners to try mediation or another form of negotiation before going to court. This is a matter of preference and should be discussed with your solicitor.
Life events
You can plan for events such as death, a relationship ending, an owner moving out or an owner being unable to pay. These are hard to think about but much easier to agree before they happen.
Example of unequal contributions
Imagine that Priya and Sam buy a £300,000 home. Priya contributes £45,000 towards the deposit and Sam contributes £15,000. They plan to pay the mortgage equally. Their declaration of trust could provide for each person’s initial contribution to be returned to them when the property is sold, after the mortgage and selling costs have been paid. Any remaining proceeds could then be divided equally.
This is only one possible arrangement, and the figures are for illustration. Their solicitor would need to document what they actually agree. That includes what happens if the property falls in value, or if one person later pays more towards the mortgage or improvements.
What a deed of trust cannot do
A deed is useful, but it has limits.
- It does not change what you owe the lender. Joint mortgages commonly make each borrower responsible for the whole debt, whatever the split in the deed.
- It does not bind a court in divorce or dissolution. Courts have wide powers over the finances of a married couple or civil partners. The deed is likely to be relevant, but it may not decide the outcome.
- It is not a will. What happens to a share when someone dies depends on how you hold the property and on your will.
- It cannot guarantee there will be no disputes. Unclear or outdated wording can cause them.
How is a deed of trust made?
An express declaration of trust concerning land must be evidenced in writing and signed by a person legally able to declare the trust. It is often prepared as a deed, which carries specific signing and witnessing requirements. You don’t need a solicitor by law, but a solicitor or licensed conveyancer can help ensure the document is prepared and executed correctly. This is especially worth considering if the owners’ interests differ, in which case each may benefit from separate advice.
Timing
The deed is usually agreed alongside the purchase and signed before completion. It can also be made after you buy, but it is simpler to agree at the start.
What information is held by HM Land Registry?
HM Land Registry records the legal owners of the property, but the title register does not normally show the detailed division of beneficial ownership. The declaration of trust is usually kept as a separate document, although ownership information may also appear in the transfer or other documents held by HM Land Registry.
Where the beneficial interest is held as tenants in common, a Form A restriction will normally appear on the title register. It restricts the registration of certain transactions involving capital money, but it does not identify the beneficial owners or show the size of their shares. Those details may be recorded in the property transfer, a separate declaration of trust or both.
Tax and other financial points
A deed of trust is not a tax-saving tool by itself, but the way ownership is divided can affect tax.
- Capital Gains Tax: The beneficial ownership split may affect how a taxable gain is divided between the owners. Relief may be available when the property has been someone’s main home, but eligibility depends on the circumstances.
- Rental income: Spouses and civil partners who live together are normally taxed on income from jointly owned property in equal shares. Where their beneficial interests and entitlement to income are genuinely unequal, they may be able to ask HMRC to tax the income according to the actual split using Form 17 and supporting evidence. Different rules may apply to other co-owners.
- Later ownership changes: Transferring a share, adding an owner or changing beneficial interests can have Stamp Duty Land Tax, Capital Gains Tax and Inheritance Tax consequences. This can be particularly relevant where the property is mortgaged or money changes hands.
A qualified tax adviser can advise on your own circumstances.
Is a deed of trust worth the cost?
For many people who buy with unequal contributions, the answer is often yes, but it depends on your situation.
Costs
Legal fees vary depending on the complexity and the firm, so ask for a clear quote that says what is included. If the deed is arranged as part of your purchase, the work may be combined with your conveyancing.
Downsides
A deed takes time and requires honest conversations about money. It may need updating when circumstances change. A poorly drafted deed can create the very disputes it is meant to prevent.
Changing or ending a deed of trust
The owners may be able to replace or vary a declaration of trust by agreement, normally through a further legal document. Some changes to beneficial ownership can also occur through other legal processes, including severance of a beneficial joint tenancy. If one person buys another owner’s interest, changes may be required to the legal title and mortgage. The lender’s consent will usually be needed before someone is released from the mortgage.
If owners can’t agree, any of them may ask a court to decide matters such as sale or occupation under the Trusts of Land and Appointment of Trustees Act 1996. This is usually a last resort because of the cost, time and strain involved.
Questions to ask before you sign
Use these to prepare for your conversation with a solicitor or licensed conveyancer:
- Will we hold the property as joint tenants or tenants in common?
- How are our shares worked out, and can they change?
- Who pays what, and what happens if someone can’t?
- How will a sale or buy-out work, and how will the property be valued?
- Have we each made a will?
- Have the lender and conveyancer been told about any gift, loan or unequal shares?
- Has each of us had the chance to take independent advice?
Important information
This article is general information for England and Wales. It is not legal, tax, financial or mortgage advice, and it is not a substitute for advice on your own circumstances. Laws, tax rules and Land Registry practice change, so check the current position before you act. Consult a qualified solicitor or licensed conveyancer about a deed of trust, a qualified tax adviser about tax, and a mortgage adviser about borrowing.
Your home may be repossessed if you do not keep up repayments on your mortgage.
