Specialist Deed of Trust Lawyers – protecting money in property
Declarations of Trust, sometimes called ‘Deeds of Trust,’ are legal documents usually drawn up by a Solicitor, when purchasing a property that sets out the financial arrangements between all parties with a joint interest in that property.
- A Deed of Trust that is correctly drafted and valid is legally binding and enforceable by the courts.
- Declarations of Trust may be needed in a range of different scenarios where a property has more than one beneficial owner.
- The term ‘beneficial interest’ simply means that a person has an economic interest in a property.
- A ‘Subordination Agreement’ states that a party agrees that their interest in a property ranks behind another party’s interest, typically a mortgage lender.
- A Declaration of Trust does not need to be registered at the Land Registry, but it is advisable to register a restriction with the Land Registry showing that the property is held on trust.
‘Declarations of Trust’ offer much-needed protection for anyone with joint ownership of a property in England or Wales, including partners, friends, parents, and investors. In this article, we will consider a range of questions we are often asked in relation to Declarations of Trust, including:
- What is a Declaration of Trust?
- When is a Declaration of Trust required?
- What are the benefits of a Declaration of Trust?
- How does a Deed of Trust affect rental income?
- Declarations of Trust – What is a beneficial interest?
- Is there a difference between a Declaration of Trust and a Deed of Trust?
- Declarations of Trust – what is a subordination agreement?
- What are the pros and cons of putting your house in a UK trust?
- Do Declarations of Trust need to be registered at the Land Registry?
- How long does a Declaration of Trust last?
- Can Declarations of Trust be overturned?
- How do you put my house into a trust?
- Is a Declaration of Trust legally binding?
- Can you avoid inheritance tax with a trust?
- Do I need a solicitor to prepare a Declaration of Trust?
- Will a Declaration of Trust affect my mortgage?
- Can putting my house in a trust avoid UK care home fees?
For FREE initial phone advice from one of our specialist Trusts lawyers, call us now on FREEPHONE 0800 1404544 or one of our local office numbers [see below].
Our specialist expertise with declarations of trust
Trust law is specialist and relatively few solicitors specialise in it.
But our private client team includes a highly specialist trusts solicitor, Elizabeth Webbe. Not only did she used to lecture to solicitors nationwide on trusts, but she is a Full Member of STEP (known as a TEP, the highest of 7 levels of STEP membership). STEP, the Society of Trust and Estate Practitioners.
How our solicitors can help
At Bonallack & Bishop Solicitors, our property trust Solicitors have the experience and expertise necessary to draft your Declaration of Trust according to your unique requirements. When you instruct our experienced team, we will take the time to fully assess your current situation, future goals, and intentions for a Declaration of Trust. Once we are satisfied that we have this understanding, we will draft your document in accordance with the law so that your beneficial interest in the property is protected. In addition, we will guide you through the key aspects of the document and explain the main clauses and what each means for you.
To discuss whether a Declaration of Trust is right or necessary for you or to understand how one might benefit you, please feel free to speak to one of our friendly property trust Solicitors, who can advise you. Depending on your circumstances, we can assist you with any aspect of your Declaration of Trust, including:
- Assessing your situation to confirm if a Declaration of Trust is necessary
- Drafting your Deed
- Ensuring your Declaration of Trust is valid and legally binding
- Checking your Declaration of Trust to see if changes are required
- Variations to your Declaration of Trust
- Administration of your property trust, and
- Enforcement of your Declaration of Trust
What is a Declaration of Trust?
This is a document that is created when buying a property that sets out in clear legal terms the financial arrangements between anyone with a joint interest in that property. It sets out the share of the property each person owns and how the sale of the property should be handled in the future. This may include, for example, what should happen when selling the property or if one person wishes to buy the share of another owner.
This type of legal document not only helps to define the terms of the agreement between those with a beneficial interest in a property, but it also reduces the chances of serious disputes occurring. Such joint property ownership disputes can be extremely lengthy, costly, and stressful; so anything that can be done to avoid them is highly beneficial.
When are Declarations of Trust required?
A Declaration of Trust may be needed in a range of different scenarios where a property has more than one beneficial owner. A property or home may have more than one beneficial owner when:
- Buying property with another person (e.g. friends, family members, or unmarried couples).
- Parents help to fund a child’s property purchase.
- Owners of a property make unequal financial contributions to the purchase price or mortgage.
- Purchasing an investment property in which 2 or more people have a beneficial interest.
For example, if you and your partner purchase a home to live in but you contribute different amounts, it would be wise to draw up a Declaration of Trust stating how much share you each hold in terms of beneficial interest. If you are not sure if you need a Declaration of Trust, it is advisable to speak to a specialist trust lawyer for advice.
Do I need a Declaration of Trust?
You may need a Declaration of Trust if you are buying a property with someone else and want to make sure your financial contributions are protected. It is particularly useful if you are contributing unequal amounts to a deposit, mortgage, or ongoing costs, or if one party is investing funds that should be ring-fenced in the event of sale. Without a declaration, the law may assume equal ownership regardless of contributions, which can lead to unfair results and disputes. Having a properly drafted Declaration of Trust in place provides certainty and peace of mind for all parties involved.
How does a deed of trust affect rental income?
The question of how a Deed of Trust affects rental income depends on the share of the parties and their relationship to one another. If a property is owned by tenants in common, each co-owner is usually taxed separately. This means each person pays income tax and capital gains tax (CGT) based on their respective share of the property. Profits or losses from the property are split according to each person’s beneficial interest, which is often set out in a Deed of Trust.
For married couples and civil partners, on the other hand, the general rule is that rental income is split 50/50 for tax purposes. However, they can choose to be taxed based on their actual shares in the property. For example, if the Deed of Trust shows an unequal split, they can make the necessary declaration to HMRC.
Declarations of Trust – What is a beneficial interest?
The term ‘beneficial interest’ simply means that a person has an economic interest in a property. Economic interest means that a person receives some form of income (e.g. income from rental) or will benefit from owning a share of the property if it is sold. It is important to note that beneficial interest is not the same as ownership.
In some cases, the legal owner or owners will not necessarily be the same as the beneficial owner or owners. For example, a married person who lives in a property owned by their spouse will have a beneficial interest in the asset. Likewise, a parent who has contributed towards a deposit for the purchase of a home for their son or daughter may have a beneficial interest even if they are not listed as a named owner of the property.
Is there a difference between a Declaration of Trust and a Deed of Trust?
Technically speaking, a Declaration of Trust is a type of Deed of Trust. For all intents and purposes, however, there is no difference between a Declaration of Trust and a Deed of Trust in how they are used. Indeed, most property law Solicitors don’t differentiate between the two. Whether your Solicitor uses a Declaration of Trust or a Deed of Trust, what matters is that the document is made in writing, signed and dated, and clearly sets out the beneficial ownership of the property. This will ensure that the document is legally binding and enforceable in a court of law should an issue arise in the future.
Declarations of Trust – what is a subordination agreement?
If there is a mortgage on the property being purchased jointly, your conveyancer or property law Solicitor may recommend that a Subordination Agreement be drawn up in addition to a Declaration of Trust.
A Subordination Agreement states that a party agrees that their interest in a property ranks behind another party’s interest, typically a mortgage lender. This is important because, according to the law, the rights of the lender take priority over the agreement between the beneficial owners (i.e. the Deed of Trust). Indeed, if a lender becomes aware of a declaration of trust, they may require the beneficiaries under that trust to sign a subordination agreement.
In a situation where the borrower defaults on their mortgage repayments, the lender can repossess and sell the property first, even if this affects the other person’s share as recorded in the trust.
What are the pros and cons of putting your house in a UK trust?
| Advantages | Disadvantages |
| Each owner of the property has a clear understanding of their share of ownership – this is especially useful when deposit and/or mortgage contributions are unequal. | Legal ownership of the home passes to the trustees – as such, you could lose some control of your asset. |
| There is a much reduced chance of a dispute between those with a beneficial interest in the property. | Putting your home into a trust won’t necessarily shield it from care fee assessments. |
| Funds can be ring-fenced – for example, if parents or relatives gift or loan money to a loved one to help with a purchase, a Declaration of Trust will ensure these funds are protected and repaid if the property is sold or transferred. | Legal and administrative costs and paperwork |
| Provides evidence to prove beneficial ownership when it comes to Inheritance Tax or Capital Gains Tax purposes. | May require consent of the mortgage lender before the property can be transferred into trust |
| Asset protection – i.e. from care home assessments, creditors, and family disputes | |
| No requirement for probate for property in trust | |
| You can control who benefits from the property and when | |
| Protects inheritance for children from a previous marriage |
Do Declarations of Trust need to be registered at the Land Registry?
A Declaration of Trust does not need to be registered at the Land Registry. A Declaration of Trust is a private legal agreement between co-owners of a property and does not need to be put on the public register at the Land Registry. With that said, it is normally advisable to register a restriction with the Land Registry. This will show lenders, beneficiaries and prospective buyers that the property is held on trust and cannot be sold or transferred without complying with the terms of the trust.
Your property Solicitor will advise you on whether you should register a restriction with the Land Registry and when this should be done. They can also handle this process on your behalf to ensure it is done correctly and in your best interests.
How long does a Declaration of Trust last?
A Declaration of Trust typically lasts until the property in trust is sold, the trust is terminated, or the obligations set out within the trust have been met. It is possible to have a Declaration of Trust altered if it becomes necessary due to a change in circumstances. This can be done if there is mutual agreement between all parties, or by creating a new declaration and revoking the original.
Can Declarations of Trust be challenged?
A Declaration of Trust may be overturned if there is evidence to suggest that there was fraud, misrepresentation, undue influence, or duress. For example, if one party puts pressure on another to sign the Deed of Trust, the courts may determine that it should be overturned.
Another situation that may give rise to a Declaration of Trust being overturned is if it can be shown that one of the parties to the agreement lacks the necessary mental capacity. It is essential that all parties have the capacity to enter into and sign the document in order for it to be valid. For example, if they were unable to understand what the agreements mean due to age-related cognitive decline, the declaration may be overturned.
It is not normally possible to have a Declaration of Trust overturned simply because one of the parties wishes to disregard it or they change their mind.
How do you put my house into a trust?
To put your house into a trust through a Declaration of Trust, we recommend instructing a specialist property law Solicitor in the first instance to handle the process for you. The law in this area is extremely technical and needs to be fully understood by anyone entering into this type of agreement. After all, a great deal is at stake, and any mistakes or misunderstandings can have serious financial consequences for all concerned. Instructing a Solicitor is not legally required, but this helps ensure the document you enter into and sign is legally valid and fully enforceable.
The next steps are as follows:
- Reach an agreement on the terms of the trust, including who owns a share and the amount of the share, what happens if the property is sold, and who pays for the upkeep of the property while in trust.
- Have the deed drafted in writing – In addition to clearly stating the beneficial shares and any conditions, your Solicitor may recommend additional provisions such as express trust for sale, limitations on trustees’ powers, and provisions relating to a mortgage.
- Review the document and ensure that you understand exactly what it means.
- Sign the document and have this witnessed.
- Once drafted, it is essential that all parties keep the document in a safe place in case it is needed in the future.
The exact process we follow will depend on your circumstances. Your property may be put into trust by completing an appropriate transfer form (e.g. Form TR1) or by drafting a separate document (i.e. A Declaration of Trust). A separate Declaration of Trust is normally recommended if:
- The arrangements for your property trust are complex or lengthy.
- The owners of the property want to keep the complete details of the trust arrangements confidential. This is possible because Declarations of Trust do not need to be sent to the Land Registry. The TR1 form, on the other hand, is sent to the Land Registry and will be available for public inspection. In some cases, it is possible to have the document classified as an exempt information document (EID), in which case it will not appear in the public register.
Are Declarations of Trust legally binding?
Yes, a Deed of Trust that is correctly drafted and valid is legally binding. This means that if one person decides to go against what has been agreed, it is possible to get the court to enforce it.
Declaration of Trust will only be legally binding if it has been:
- Drafted correctly
- Entered into by parties willingly who understand the agreement and have the capacity to do so, and
- Signed and witnessed
Can you avoid inheritance tax with a trust?
It may be possible to reduce your inheritance liability by putting your home or other property into a trust. This is because transferring assets into a trust may count as a potentially exempt transfer (PET) when it comes to the inheritance tax rules. The rules state that if the settlor lives for seven years after the transfer, no Inheritance Tax is usually payable. There may, however, be an initial payment of IHT when the trust is established. Your Solicitor will be able to explain how inheritance tax applies in your unique situation and advise how to minimise any IHT due.
Do I need a solicitor to prepare a Declaration of Trust?
There is no legal requirement to have a Solicitor draw up your Declaration of Trust. Anyone considering their options should be aware that any mistakes will make the document invalid and, therefore, unenforceable.
Indeed, the law surrounding Declarations of Trust can be extremely complex, and any agreement entered into must be carefully tailored to the situation of the parties. By taking the DIY approach, there is a high risk that while you all believe you have a legally binding trust document in place, it offers none of the protection it is supposed to.
Your Solicitor will work with the parties concerned to ensure that the document meets their needs. To do so, they will ask lots of questions and make you aware of any information that you need to know. It is the ability of property trust Solicitors to forensically inquire and drill down into the current and future needs of clients that makes their advice so valuable.
What is the difference between a Deed of Assignment and a Declaration of Trust?
A Deed of Assignment is a legal document used to transfer ownership rights from one person to another – for example, assigning the benefit of a contract or the ownership of shares. In contrast, a Declaration of Trust does not transfer ownership but records how an existing property or asset is to be held between two or more people. In property matters, the declaration sets out the financial interests of each party and provides clarity on what should happen if the property is sold. In short, a Deed of Assignment transfers rights, while a Declaration of Trust records the agreed division of rights that already exist.
Will a Declaration of Trust affect my mortgage?
Your Declaration of Trust is unlikely to affect your mortgage, but it may do if:
- You create a trust before you complete your mortgage
- The deed makes it harder for the lender to enforce the mortgage agreement
- If you give a share of the equity to someone not on the mortgage
In any event, it is still important to send a copy of the Declaration of Trust to your mortgage lender. In most cases, there is nothing for them to do, and it will simply be kept on file.
Can putting my house in a trust avoid UK care home fees?
Putting your home in a trust for the specific purpose of avoiding care home fees can be a risky strategy. Local authorities are alert to the use of trusts set up to avoid the payment of care home fees.
For this reason, if they can see that the trust was set up shortly before going into care, it is unlikely that it will provide the protection required. For this reason, if you are considering using a trust vehicle to reduce or avoid paying care home fees in the future, it is advisable to do so as soon as possible, preferably decades before you require care. It is important to seek legal advice if this is your intention.
Watch out for your mortgage company.
UK mortgage lenders generally do not prohibit a Declaration of Trust but they do have some specific concerns and requirements—particularly if the declaration involves someone who is not on the mortgage. Here’s how lenders typically view it:
General Attitude: Cautious Acceptance
Mortgage lenders recognise that co-owners may want to set out their financial arrangements in a Declaration of Trust, especially in joint ownership situations. However, they are primarily concerned about protecting their own legal interest in the property.
Key Concerns for Lenders
1. No Third-Party Interests Without Consent
Lenders typically do not allow a Declaration of Trust to give rights to someone not named on the mortgage, especially if it implies a beneficial interest. This is because it could:
-
- Affect the lender’s ability to repossess and sell the property if needed.
- Introduce competing claims on the equity.
2. No Undue Risk or Delay in Possession
If a third party is granted beneficial ownership or occupation rights, that person could delay repossession, affecting the lender’s ability to recover their money.
3. Standard Mortgage Terms May Prohibit Unapproved Trusts
Many residential mortgage contracts include a clause that prohibits creating trusts or other interests without the lender’s prior written consent.
When It’s Usually Acceptable
- All parties on the Declaration are also on the mortgage: Most lenders accept this, especially in joint ownership with differing equity shares.
- Declaration is disclosed to the lender and doesn’t compromise their rights.
- For investment or buy-to-let mortgages, lenders may be slightly more flexible, but still require full disclosure.
Declarations of Trust – Best Practice
- Seek lender consent in writing before entering into a Declaration of Trust — especially if someone not named on the mortgage will be added as a beneficiary.
- Use a specialist solicitor with plenty of experience of drafting trusts, who can draft the declaration to avoid breaching mortgage terms. Our trust law specialist can help you with this
- Disclose everything up front during the mortgage application process.
Summary
| Situation | Lender Attitude |
| Declaration between mortgage holders only | Often allowed |
| Declaration involving someone not on the mortgage | Usually not allowed without consent |
| Undisclosed Declaration of Trust | May breach mortgage terms |
| Declaration affecting repossession rights | Strongly discouraged |
