What is a deed of trust on a property?

A Deed of Trust is a legal document drafted by joint property owners in the UK. It sets out their intentions for the property and makes a declaration of trust stating their share of the beneficial interest. The technical term for this type of trust is an Express or Bare Trust.

A deed of trust should include:

• a declaration of trust confirming the individual shares owned by the owners;
• how to sell the property; and
• how to split the outgoings.

For most people, a deed is used to protect money in a property so they get out what they put in.

When do you draft a deed of trust for a house?

A deed is most commonly drafted during the conveyancing process but can be drafted afterwards with the consent of all owners. You should be careful using online DIY deeds as they do not come with legal advice from a solicitor to confirm they meet your intentions. A solicitor-drafted deed should have the appropriate restrictions applied at the Land Registry. Read more - Does a deed of trust need to be registered at the Land Registry?

What are the Pros and Cons of a Deed of Trust?

What are the different types of trust deeds?

You can buy a standard deed with prescribed clauses or get a bespoke deed of trust. Here are a few different deeds to choose from:

• Deed for buying a home. Any unmarried joint owners looking to declare their beneficial interest and confirm their intentions, such as how to sell the property or what happens if you break up. It normally states a fixed share of the beneficial interest; for example, Jane owns 40%, and Mike owns 60%.
• Deed for Tax Purposes. Husband and wife landlords sharing property income in a tax-efficient way with their partner (if married, to be filed alongside a Form 17 declaration to HMRC). If this is a property you already own as joint tenants, then we can help sever the joint tenancy.
• Floating Shares DeedFor unmarried couples wanting to reflect an accurate beneficial interest that goes up and down in line with their payments into the property, including mortgage repayments, costs of purchase/sale and developments. Read more - Floating Deed of Trust.
• Deed of No Beneficial Interest. Used for clients buying with a joint mortgage sole proprietor mortgage product where they need to declare a zero beneficial interest to avoid second home stamp duty tax, divorces and even to protect joint shared but not jointly owned property. Read more -Declaration of no interest in property.

What is a tenants in common deed of trust?

A tenants in common deed of trust simply means a deed of trust because you can't own separate shares as joint tenants. Read more -

Can I use a deed when buying as joint tenants?

No. When buying as Joint Tenants, you can't own separate shares of the beneficial interest. To own separate shares, you need to:

• Sever the joint tenancy to tenants in common. Read more - How to sever a joint tenancy
• Draft a deed of Trust or Deed of Assignment depending on your marital status and the purpose of the deed; is it for tax on a second home or to define your interest due to a break-up? Read more - A deed of assignment for tax purposes

Examples of when to use a deed of trust

• 1

  Unmarried couples

Unmarried couples should never buy a property without a deed. The relationship can end as quickly as it started; however, the couple are still bound by the mortgage and the property. Unlike married couples who can rely on the divorce/family courts to work out what each is owed, unmarried couples don't have this.

Where a relationship breaks down for unmarried couples, a Judge will put a huge weight on the deed of trust and question why it shouldn't be used to distribute the proceeds of the property or if there is a dispute over selling.

A floating deed of trust suits unmarried couples better because if they break-up and one party moves out, the party remaining in the property paying more of the mortgage can increase their beneficial interest (equity) in the property until the sale.

• 2

  Married couples

A deed of trust rarely suits married couples because of the family courts in a divorce. When you divorce, you declare all the joint assets and provide the deed. While the judge reviews the deed, the decision on the split of assets is up to the judge, and the deed is often set aside when making that decision, especially if there are dependents or children. Plus, even if there is a clause in the deed regarding sale, a Judge won't decide on enforcing it whilst the divorce is being finalised.

If the deed is for tax purposes, then a Deed of Assignment might better suit this purpose.

• 3

  Family

Most commonly, a parent to a child where they support them buying their first home. The risk of using a deed for the parents if they own another property are the stamp duty rules. By having an interest in another property and then also their child using a deed of trust, they will:

• Lose First-time buyer SDLT relief; and
• Attract second home SDLT rate of 3% on top of the normal rate of stamp duty. Read more - Deed of Trust Stamp Duty

The family pay prefer a loan agreement over a deed of trust. Read more - Deed of Trust or Loan Agreement