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Co-ownership and declarations of trust

Apr 6, 2020, 07:51 AM
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Where a client owns or plans on owning a property jointly with someone else, there are a number of things that should be considered.

Perhaps a client and his or her partner have brought or intend to buy a property and they will be contributing to the purchase price (or the mortgage repayments or the cost of improvements to the property) in unequal proportions or maybe a client has bought or intends to buy a property with his or her child in order to help them onto the property ladder.

If so, they should carefully consider how they will own the property. There are two ways in which property can be owned jointly.

Joint tenants

If a property is held as joint tenants, both/all parties will own the whole of the property.  On the death of the first joint tenant, his or her share in the property will automatically pass to the surviving joint tenant regardless of the terms of the Will or intestacy of the deceased party.  This type of ownership is most common where spouses buy a property together.

Tenants in common

If a property is held as tenants in common, both/all parties will own a distinct share in the property.  On the death of the first tenant in common, his or her share in the property will pass in accordance with the terms of his or her Will or intestacy. 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 a property is held as tenants in common the starting point will be that the property is owned by both parties in equal shares.  In the event that there is no documentary evidence and it is disputed that the property is held equally between the parties 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.

Declarations of Trust

One way to avoid such disputes and to avoid uncertainty in the future is to document the shares contributed to the purchase price and the intentions of the parties in relation to ownership by putting in place a Declaration of Trust.

Tax and administration

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.

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.

It is important to remember that a Declaration of Trust is not a substitute for a Will. Clients will still need to have a Will to ensure that his or her share of the property passes to his or her intended recipient on his or her death.

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