Do you own a property with someone else, or are you planning to?
Perhaps you and your partner have brought or intend to buy a property and you will be contributing to the purchase price (or the mortgage repayments or the cost of improvements to the property) in unequal proportions or maybe you have bought or intend to buy a property with your child in order to help them onto the property ladder.
If so, you should carefully consider how you will own the property; as joint tenants or tenants in common.
If you own a property as joint tenants, you will both own the whole of the property. On your death, your share in the property will automatically pass to the surviving joint tenant regardless of the terms of your Will. This type of ownership is common where spouses buy a property together.
Tenants in common
If you own a property as tenants in common, you will each own a distinct share in the property. On your death, your share in the property will pass in accordance with the terms of your Will (or the intestacy rules if you do not have a Will). This type of ownership is common where unmarried partners, friends or parents and children buy a property together.
In the absence of any documentary evidence of an agreement to the contrary, where you own a property as tenants in common the starting point will be that the property is owned by you both in equal shares. In the event that this is not the case or that this is disputed then it may be necessary for the Court to become involved to determine each co-owner’s share. This can be a stressful, costly and lengthy process.
A way to document the shares contributed to the purchase price, the intentions of the parties in relation to ownership and to avoid uncertainty in the future is to put in place a Declaration of Trust, for instance if:
- You have bought a property as tenants in common with a co-owner, you might want a Declaration of Trust that says that if you sold then you would both get your deposits back (which might be different amounts) and details how the remaining equity is to be split.
- Your parents lent you money for the deposit for the purchase, you might want a Declaration of Trust that says that if the property is sold then your parents will get their deposit back before the equity is divided. You might also want to set out any express terms you wish to agree between the owners, such as the contribution each party will pay towards any mortgage, practical arrangements in respect of things like maintenance of the property or how other expenses related to the property will be met.
Although the exact details of a Declaration of Trust can be kept confidential, once it has been created, a restriction should be placed on the registered title of the property to alert third parties to its existence.
There are some tax consequences to consider when putting in place a Declaration of Trust; inheritance tax, capital gains tax and income tax may all be relevant. Further, in order to be valid, a Declaration of Trust must be drafted in a certain way and certain formalities must be met.
Please note that a Declaration of Trust is not a substitute for a Will. You need to have a Will to ensure that your share of the property passes to your intended recipient in the event of your death.