Cohabiting couples and property ownership: Why a Declaration of Trust matters

With the spotlight on cohabiting couples and potential legal reforms, now is a good time to consider how property ownership can affect your financial position. Understanding the different ways a property can be owned, and whether a Declaration of Trust is needed, can help provide clarity and protect your investment.

The Government has recently concluded its consultation, A Fairer End to Relationships, which considered potential reforms to the rights of cohabiting couples. While the outcome remains uncertain, the consultation highlights the importance of carefully considering how property is owned when buying with a partner.

There are three ways in which joint owners can hold a property:

Joint tenants

Both owners hold the property together as a single legal and beneficial interest. There are no separate shares, and if one owner dies, their interest automatically passes to the surviving owner under the right of survivorship.

Tenants in common in equal shares

Each owner holds a separate 50% share in the property. On a sale each owner is entitled to their 50% of the proceeds of sale. There is no right of survivorship, meaning each owner’s share passes in accordance with their Will or the intestacy rules.

Tenants in common in unequal shares

Where owners contribute different amounts towards the purchase, they may wish to hold the property in unequal shares. These arrangements are typically recorded in a Declaration of Trust, which sets out each party’s beneficial interest and how the equity in the property will be divided on sale.

This is particularly important for unmarried couples. Unlike married couples and civil partners, cohabiting couples currently have limited financial rights if their relationship ends, regardless of how long they have lived together.

While the Government is considering whether greater legal protections should be introduced, a properly drafted Declaration of Trust remains one of the most effective ways to protect each party’s financial investment and provide clarity from the outset. A Declaration of Trust can also be drafted after completion of the purchase if both parties agree to set out their financial interests retrospectively.

If you are thinking of purchasing, or already have but wish to reflect the parties differing financial contributions, either at the outset or after the event, a Declaration of Trust can provide certainty by clearly outlining each party’s financial interest. Please get in touch with our residential property team.

Our highly rated residential property team has a reputation for excellence in Cheltenham and Gloucestershire, and can help clients with buying or selling a home, changing the legal ownership of your property and more.