Buying a property is an exciting step – albeit a stressful one. Whilst some people can afford to buy a property alone, it is common for more than one party to be involved. Whether you are buying with a friend, moving in with a partner or receiving financial support from your parents, adding multiple individuals to a purchase can make it a lot more complex.
This is especially true where there is not a clear 50/50 financial split between the parties. Perhaps one person has a larger initial sum to invest, or another will be contributing more to the monthly mortgage repayments.
In these cases, it is important to have legal clarity around just how much each person owns. What is Trust Deed UK– also known as a Deed of Trust – can help to avoid uncertainty and prevent disputes further down the line.
What is a Declaration of Trust?
In UK property law, a Trust Deed UK is a legal document stating that one person holds the property on trust for others.
Whilst there will be a registered owner of the property, the Deed of Trust establishes the true ownership and how it is divided between different parties. It sets out the financial arrangements between those with an interest in the property, for example in the case of cohabiting couples, joint tenants or tenants in common. It will specify exactly how much each person has invested and what each will get back if the property is sold or one person buys out another.
This clarification at the outset means that each party knows where they stand in terms of their initial or ongoing investment in the property. In a situation where parents are investing money into the property to enable child to afford the full deposit, the Trust Deed UK will set out how much money will be repaid and under what conditions.
When is a Trust Deed UK used?
Whether you are buying a property with someone else as co-owners, or receiving financial help from a third party, a Trust Deed UK is an essential document. Although the initial financial arrangements may be cordially agreed at the point of purchase, the long term financial picture may require more clarification:
What will happen if one person wishes to sell before another?
What if you split up with your partner – how will you ensure the property is split fairly between you?
Drawing up a Trust Deed UK sets clear boundaries that enable everyone to understand the agreed ownership position. It protects those who are investing more money from legal disputes if they expect to receive a larger portion of any future sale proceeds.
Why is a Trust Deed UK important for cohabiting couples?
Buying your first property with a partner can be a daunting commitment. It may make financial sense, but there is also an element of risk if things do not work out.
For example, what should happen if one party contributes a larger percentage of the deposit, but ongoing mortgage repayments will be split evenly? In this scenario, the Trust Deed UK may stipulate that when the property is sold, if the couple then wish to split their finances, they will each receive their initial deposit and then divide the remainder 50/50.
It may be the case that one of the couple’s parents are contributing a fixed sum to help raise enough for the deposit. In this instance, a Trust Deed UK could provide that those parents will receive that money back when the property comes to be sold, if the couple were to split up.
Considerations for joint tenants and for tenants in common
When buying a property with someone else, it is important to decide whether you wish to buy as “joint tenants” or as “tenants in common”. As joint tenants, each person owns the property as a whole, with neither party owning a specific share. Upon sale, the profit would be automatically split 50/50, regardless of each co-owners’ investment, and if one co-owner were to die, the entire property is automatically transferred to the survivor. This is a simple solution for a couple who wish to leave the property to the other upon death.
Conversely, as tenants in common, both parties own a specific portion of the property, as agreed between them. This may well be 50/50, but not necessarily. This arrangement provides more flexibility for complex situations, which may involve children from another marriage.
A Trust Deed UK is invaluable for both joint tenants and tenants in common. For joint tenants, it will set out how the joint tenancy can be severed, should the co-owners choose to go separate ways. And for tenants in common, it draws out exactly what investment each has made, what percentage of the property they therefore own, and how each will benefit from the sale of the property.
How do I set up a Declaration of Trust?
Before setting up a Declaration of Trust, you will want to calculate the proportion of the property that will belong to each co-owner. Consider all the costs involved in the purchase and how these have been divided. Both parties must complete the Declaration of Trust, so it is vital you both agree on the particulars. The trust document will then be completed and dated on the date of completion of the property purchase. It will typically also be registered against the title of the property at the Land Registry, so that future buyers are aware of who the property truly belongs to (and to whom the sale price should be paid).
Financial disputes, especially over property ownership, can be complex and emotional, as well as being costly. By setting up a Declaration of Trust, each owner is therefore taking steps to protect their investment.
