Buying a Property in Joint Names – Do I Need a Declaration of Trust?

A Declaration of Trust is a legally binding written agreement which sets out the beneficial ownership of a property in the proportions contributed by each party regardless of the title entry at the Land Registry.

Declarations of Trust are becoming ever more popular in a rising property market where first time buyers are increasingly reliant on contributions from their parents in order to put down a deposit on a property and unmarried couples are purchasing a property together with differing contributions.

A common scenario might involve first time buyers where Miss X and Mr Y are unmarried and have saved up for a deposit on a property, they will be paying the mortgage instalments in equal shares. Miss X’s parents have given her an additional amount of £50,000 to put towards the purchase price. Naturally, Miss X’s parents want to ensure that the gift to their daughter is protected should the couple split in a few years’ time. A Declaration of Trust would set out the beneficial interest in the property and could state that after the mortgage has been redeemed in full, Miss X would receive £50,000 with the remainder of the sale proceeds being split equally between her and Mr Y.

Another scenario might involve Miss A and Mr B purchasing a property together in Miss A’s sole name due to Mr B being unable to obtain a mortgage and therefore not being entitled to have his name on the title to the property at the Land Registry. Miss A and Mr B have contributed equal amounts to the purchase price and will pay the mortgage instalments in equal shares. A Declaration of Trust would set out that Miss A holds the property in her sole name as a Trustee for herself and Mr B in equal shares thereby ensuring that Mr B will receive his beneficial share of the property.

In both scenarios, a Declaration of Trust sets out from the start the actual beneficial ownership of the property. This will avoid any unpleasant and lengthy battles between the parties should the property need to be sold and the sale proceeds divided.

If entering into a Declaration of Trust, we would always advise the parties to also make a new Will. This is because the joint owners of the property will need to hold the property as tenants in common which means that each of their respective shares will not automatically pass to the survivor of them on death. To ensure that each of the parties’ shares will pass in accordance with their wishes on their death, a Will would state what they wished to happen to their share of the property.