How can a declaration of trust help unmarried couples with property? When “what’s yours is mine” can create problems on separation

With recent data showing that the average age of first-time buyers has now risen to 34, it comes as no surprise that it is incredibly challenging for young adults today, to place even a toe, let alone a foot, onto the housing market. Any successful individuals are finding that they are having to raise larger deposits or/and are saddled with much larger mortgage debts than their parents at the same age.

Where the dreams of being a property owner for many seems impossible, many are looking to pool funds and purchase property jointly with their respective partner. The law provides for each person to be protected if they are married, buy a property, and later separate, but what are the implications of doing this where the parties are unmarried? Is there any type of protection that can be put in place should that relationship fall apart?

Unmarried couples should carefully consider what type of ownership they are entering into when purchasing a property; they should take advice on the differences between “joint tenancy” and “tenancy in common”. Understanding and choosing the correct type for you is extremely important.

What is a declaration of trust?

Usually, it is advisable for unmarried couples to purchase a property as tenants in common and to have a “declaration of trust” drawn up to record each person’s interest in the property. This protects each party’s interests in the event of a breakup. It may not be considered romantic or trusting to reflect on these issues amidst the excitement of purchasing a new home, but it is extremely important for the protection of future interests.

A declaration of trust is a common way of showing the beneficial entitlements of each party to a property. The document will often confirm the respective deposit amounts contributed by each party, the mortgage sum, whether interest will be charged on any sums due and at what rate, other agreed sums that should be deducted (such as solicitor fees, mortgage etc) and finally, the percentage split of the net property sale proceeds between the parties. Usually, the declaration will confirm what sums are to be repaid first from property sale proceeds (such as the deposit contributions).

The declaration of trust can be as simple as you wish, referring to simple 50:50 shares or fractional shares of the net funds. It can also be drafted to be a more complex document, such as referring to “floating shares”. This may be useful where the parties are contributing differing amounts at differing times of the ownership period.

Whilst the details of the declaration of trust are not recorded on the public Land Registry and the document remains private between the individuals, there are steps that can be taken to ensure your interest is protected under this document. One main way is by entering a “Form A” restriction against the title deeds which will create an entry on the title so that future buyers, lenders and third parties are aware there is an interest registered against the property, which means that terms must be complied with before it can be sold.

In some situations, it may also be appropriate to register the declaration of trust on the HMRC Trust Registration Service where the beneficial owners differ from the legal owners. This is a legal requirement, and advice should be sought as to whether registration is needed.

Avoiding pitfalls

Care should also be taken when parties to a declaration of trust subsequently marry as marriage will supersede this document and differing considerations will be given by the courts on divorce. Again, advice should be sought as to whether the intention on the property division will be different following marriage, and a pre-nuptial or post-nuptial agreement can be put in place to account for the intentions.

As property is usually the largest asset in most people’s estates, it is vital that advice is taken at the right time to ensure that your asset is safely protected. This is especially true given the UK Government’s recent announcement that there will be a consultation into the law surrounding unmarried couples and their rights, as it seems possible that from this, there will be significant changes in the law in the coming years.

If you have any queries or would like assistance, please contact Karmen Ko in our Private Client team and Rachel Knight in our Family team for tailored advice.