MENU
MENU

What is a Declaration of Trust, and Why is it Important? 

Buying a property can be a big step in your life, especially if you purchase a property with another person. 

It is no wonder that more and more people are choosing to buy a property with the support of a partner, friend, or family member. 

With the current state of the housing market and the threat of increasing inflation, purchasing a property with someone else could offer a lifeline to someone looking to get onto the property ladder. 

If you have decided to purchase a property with someone else, consider drafting a Declaration of Trust. At Brown Turner Ross, we can provide the support you require to draft one. 

What is a Declaration of Trust

Declaration of Trust.

Also known as a Deed of Trust, a Declaration of Trust is made when multiple people own a property. 

Developing a Declaration of Trust is vital when no legal arrangements are in place between the individuals involved in the property transaction. It clarifies the entitlements of all involved parties and what will happen if the property is sold.

A Declaration of Trust should be made when purchasing a property, confirming the financial arrangements of all parties involved. Declarations of trust are essential for protecting everyone involved in the transaction and letting everyone know where they stand. 

Why Do You Need a Declaration of Trust?

A Couple Buying a Property

There is a misconception that couples are protected by a ‘common law marriage’ when they live together, but this is not the case in the UK. Complications may occur if the relationship breaks down or disagreements arise without a Declaration of Trust, and the party not on the deed may suffer. 

A Declaration of Trust removes all uncertainty and ensures everyone receives the right protection. 

Protecting Someone Not on The Mortgage

You do not necessarily have to be in a relationship with someone to purchase a property together. There are numerous reasons someone may not be on the mortgage, such as moving into a preowned property or mortgage ineligibility caused by debt or bad credit. 

A Declaration of Trust will clarify this arrangement and protect all parties. 

Reduce Future Risk

Unfortunately, it can be hard to predict which events may unfold and how your relationship with anyone with stakes in the property will develop. 

Declarations of trust are essential to declaring everyone’s contribution to the property, as the Land Registry only records ownership and not the contribution of all involved parties. 

If you have an unexpected disagreement with another stakeholder in the future, a Declaration of Trust ensures that you all receive what you are entitled to. 

Having a declaration of trust will make you feel much more secure and protected in your ownership. 

What Does a Declaration of Trust  Do?

A Declaration of Trust protects the interests of everyone involved and invested in the property. This protection is essential when selling the property. 

Without a Declaration of Trust, parties that have made major investments in the property may not be compensated for their interest. 

What Should You Include in a Declaration of Trust?

Declaration of Trust.

No two declarations of trust are the same, and you must adjust your declaration to fit your circumstances. When drafting your statement, it is essential to have the support of an expert solicitor who will tailor the declaration to suit your needs. 

Though every situation is different, the following information should be included in your Declaration of Trust.

  • The money each party has contributed to the property.
  • In the case of a mortgage, how much has each party contributed to each payment. 
  • A set percentage of the property that each party owns. 
  • The amount each party will receive if the property is sold. 
  • How the property will be valued. 

Is a Declaration of Trust Legally Binding?

A Declaration of Trust is a legally binding document if it meets the set criteria. 

Having a legal professional draw up the contract will ensure that you meet all of the criteria, such as demonstrating that all parties entered the contract willingly and with a complete understanding of what entering into the contract entails. 

The document must also be signed with a witness present to ensure everything is on the books. A declaration may be considered void if it does not meet these requirements. 

How Long Does a Declaration of Trust  Last?

The length of your Declaration of Trust goes hand in hand with the time you own the property. The declaration is upheld as long as the conditions declared are being met. 

Events that could end a Declaration of Trust include:

  • The sale of the property. 
  • If a party dies. 
  • All parties choose to end the contract. 

As long as the Declaration of Trust exists, the involved parties can make alterations or end the agreement. 

Can a Declaration of Trust be Overturned?

Circumstances can change, and with the consent of all involved parties, the Declaration of Trust can be overturned, amended or completely rewritten. 

Suppose you want to make small changes to the Declaration without completely changing the document. In that case, a deed of variation can be added to the original document to add any new clauses. 

If you want to make considerably more significant changes, it may be beneficial to rewrite the document entirely. 

Some reasons for rewriting a Declaration of Trust include:

  • The value of the property changes. 
  • A change in stake. 
  • One person is bought out.

If you want to change your Declaration of Trust, contact a solicitor first to ensure that any changes made are legally binding. 

How Much Does a Declaration of Trust Cost? 

Declaration of Trust.

There is no set cost for a Declaration of Trust, which can range from £250 to £1000 plus VAT. Your costs will depend entirely on the firm you turn to for help drafting the Declaration. 

There are many contingencies to consider, such as the complexity of the document, the number of clauses included, and the number of consultations required during the drafting process, which can all influence the cost of the Declaration of Trust. 

If you would like to discuss the costs of setting up a Declaration of Trust further, you can contact a team member, who will be happy to provide more information. 

Does a Declaration of Trust Impact Taxes?

Not many people understand that a Declaration of Trust can impact your taxes, directly altering the tax you pay. 

Income Tax

If the property you purchase generates income, the declaration of trust can affect how this income is taxed.

Inheritance Tax

A declaration of trust can affect inheritance tax. This is especially the case if one party dies and their share of the property is passed on, which can create complications in the agreement. 

Stamp Duty

If there is a transfer or share of the property, you may be taxed for this if there has been an exchange of economic value. 

Capital Gains Tax

If you transfer property ownership through a Declaration of Trust, the transaction could be subject to capital gains tax. 

Pros and Cons of a Declaration of Trust 

Declaration of Trust.

If you are considering drafting your Declaration of Trust, full transparency is essential; here are some pros and cons of getting one. 

Pro: Avoiding Conflict

Establishing a Declaration of Trust provides clear guidance on ownership. Without written documentation, determining ownership can be quite challenging. If a conflict were to arise, a Declaration of Trust would certify exactly where everyone stands.

Con: Tax Implications

As discussed, a Declaration of Trust can affect how the property is taxed. Depending on your arrangement, you could have to pay much more money. 

Pro: Flexibility

When you draft a Declaration of Trust, you are not forced to adhere to the initial agreement; if circumstances change, you can amend the Declaration to suit your new needs. 

Con: Revisions

If you make any changes to your Declaration in the future, you will need to employ a solicitor to help you make amendments or redraft completely, which can come with additional charges. 

Though these charges are not too high, they should certainly be considered when you initially draft your Declaration of Trust. 

How Brown Turner Ross Can Assist With Declarations of Trust

If you are considering owning a property with several stakeholders or you are an unmarried couple looking to purchase a property, contact Brown Turner Ross today; one of our trained solicitors will be able to advise you and guide you through the process. 

Southport Solicitors

Tel: 0170-454 2002

Fax: 0170-454 3144

law@brownturnerross.com

11 St George's Place

Lord Street

Southport

PR9 0AL

Liverpool Solicitors

Tel: 0151-236 2233

Fax: 0170-454 3144

law@brownturnerross.com

The Cotton Exchange Building

Bixteth Street

Liverpool

L3 9LQ

Formby Solicitors

Fax: 0170-454 3144

law@brownturnerross.com

Marion House

23 -25 Elbow Lane

Formby

L37 4AB