Declaration of Trust Knowledge & Resources

There are three requirements for a declaration of trust to be valid certainty of words certainty of subject matter certainty of objects. In addition, a declaration of trust over land, or any interest in it, must be evidenced in writing but it does not have to be made by deed. However, it is common for declarations of trust to be drafted as deeds to avoid any suggestion that the contract is not valid.

A declaration of trust is a document in which a trustee (or two or more trustees) is appointed to hold property or land on trust for the benefit of others. The declaration of trust confirms the beneficial ownership regardless of the title deeds and alerts future purchasers that the registered owner holds the proceeds of sale on trust.

A declaration of trust is useful if one person contributes more than the other towards the purchase of a property or mortgage repayments. It is also a very useful document for parents (often non-registered owners) helping their children to get onto the property ladder, by setting out what share they have in the proceeds of sale.

A declaration of trust over land is not registered at the Land Registry. This means that the trust document is not available for public inspection so the exact details of the trust arrangements can remain confidential. However, co-owners of land will want to alert third parties to the existence of the tenancy in common and the need to pay the purchase money to at least two trustees. For registered land, this is possible by entering a restriction on the register or, for unregistered land, by endorsing a document of the declaration on the conveyance (or the lease) to the parties of the property.

It is always advisable for co-owners who hold property as tenants in common (where each co-owner owns a specific share of the property) to enter into a declaration of trust. This can be put in place before or after the property has been purchased.

Tenants in common is a type of joint property ownership where each owner owns a separate share in the property. On the death of one of the tenants, their share passes to their beneficiaries in accordance with their Will or intestacy rules if they don’t have a Will. Joint tenants is a type of joint ownership where each owner (joint tenant) owns the whole of the asset, rather than a distinct fractional share. When a joint tenant dies, the asset (usually land/property, but can be a joint bank account or shares) automatically passes to the surviving joint tenant(s). For inheritance tax and capital gains tax purposes, each joint tenant is entitled to an equal share in the asset.

Property ownership can be changed from joint tenants to tenants in common. For example after divorce, leaving the share of the property to someone that is not the spouse. A joint tenancy can be severed at any time. Tenants in common ownership can also be changed to joint tenants, for example so a couple has equal rights to the property after marriage.

An application is made to the Land Registry to enter a restriction over the title. A tenancy in common restriction is the most common type and is known as a ‘Form A Restriction’.

A Form A restriction indicates that there are other third party interests in the property. As a result of this, the mortgage provider may require further information about the extent of these interests (and the consent of the beneficiary) before providing any further funds.

A declaration of trust does not constitute an acquisition of a chargeable interest so there isn’t be any Stamp Duty Land Tax (SDLT) payable. If the declaration of trust is executed alongside a land transaction such as the purchase of the property by the co-owners, then it is the land transaction that will be liable to SDLT.

A co-owner cannot be forced to enter into a declaration of trust. In the absence of documentary evidence, the person making the claim must prove to a court that they were entitled to a share, or a greater share, of the property. The court will look at the intentions of the co-owners, their behaviour and financial contributions made. As financial contributions are only one of the factors taken into account, it is best to have a declaration of trust prepared at the outset.

Backdating a document is potentially an offence. However, it is possible to provide that a declaration of trust is deemed to have effect from a date in the past or in the future. If the declaration is intended to take effect from a past date, it should also state clearly the date that it was made.