With the average UK house price at just over £250,000, it is not uncommon for many people to buy a property with someone else or with the assistance of friends or family. With the busyness and excitement surrounding the purchase of a property, it can be easy to neglect one major consideration – how will the sale proceeds be divided if the property is later sold?

For example, if you were to purchase the property with a partner, but one of you were to contribute a greater amount towards the deposit or pay higher monthly mortgage repayments, it may not be fair for the sale proceeds to be split evenly if, at a later date, the property was sold. Another very common scenario is where a parent contributes towards the purchase of their child’s property; the parent may well want their contribution back if the property were later sold.

Having a Declaration of Trust in place can deal with such scenarios and ensure that there is a fair distribution of the property’s equity.

What is a Declaration of Trust?

A Declaration of Trust, also known as a Deed of Trust, is a document that sets out the financial arrangements between joint property owners and/or anyone who may have a financial interest in the property. The document is legally binding and therefore must be honoured. It can be a great instrument to avoid disputes and provide certainty for the future.

Preparing a Declaration of Trust can give you peace of mind that if a time were to come when the property was sold or one party wanted to be bought out, there is an enforceable document in place setting out who will get what from the sale proceeds.

Who should get a Declaration of Trust?

Anyone who is buying a property with someone else or anyone who is buying a property with financial assistance from someone else should consider putting a Declaration of Trust in place. This is especially true in the following situations:

  • Unmarried couples or cohabiting friends/relatives;
  • When one party’s name is not on the mortgage; or
  • A family member or friend has financially contributed towards the property

Scenario 1: A & B are a couple looking to purchase a property together. A is going to be contributing more towards the deposit and will be paying higher contributions towards the monthly mortgage repayments.

In this scenario, the Declaration of Trust can stipulate what A is planning on contributing both as a deposit and percentage of monthly payments and what share of the property A and B would receive in the event that the relationship ended and the property was sold or one was bought out.

Scenario 2: Two friends are looking to purchase a property together with contributions from their parents.

In this scenario, by having a Declaration of Trust in place, their parents who have contributed can stipulate how much should be repaid to them and in what circumstances the money should be repaid. The Declaration of Trust will therefore protect the money that has been invested by this third party.

What should be included in a Declaration of Trust?

It very much varies case by case but it can include:

  • The amount that each person has contributed towards the deposit and how much will be repaid to them if the property is sold;
  • The percentage that each person will own and how the sale proceeds will be split if the property is sold;
  • How much each person will contribute towards the mortgage repayments;
  • A mechanism which allows for the property to be sold or owner bought out

When should I get a Declaration of Trust?

A Declaration of Trust can be entered into at any time. However, it is best to enter into one at the same time you complete your purchase.

Should I also consider making a Will when I buy a property?

If you do not currently have a Will in place, it is really important that you seek to do so as soon as possible. By having a Will in place it will ensure that your wishes are adhered to even after you have passed away. If however, you do have a Will in place, it is important to review it regularly especially after significant life changes such as the purchase of a new property.

How our Declaration of Trust solicitors can help

It is critically important to get the right advice and ensure that the Declaration of Trust is accurate, covers all relevant issues and is enforceable.

The Tax, Trusts and Wills Team at LA are experienced in advising on and drafting Declaration of Trusts and Wills and would be happy to assist with any queries that you have.  We will assess your needs and your current situation to ensure that our advice is tailored to your specific circumstances.

We are able to arrange appointments either in our offices or via Skype, Zoom or WhatsApp as you prefer.

Please email online-enquiries@la-law.com or call 01202 786153 if you would like to get in touch.