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Declaration of Trust

A Declaration of Trust (also called a Deed of Trust) is a document that shows how much each of the joint owners of a property actually own.

The most common situation for using one is if you’re in a couple (married or civil partnership) and you rent out a property that you own together.

Usually, HMRC will consider a couple to own equal amounts, 50–50. Both will need to file a Self Assessment and pay tax on their share.

However, if you sign a Deed of Trust, you can use it to tell HMRC that what you earned from renting out your jointly owned property should not be split equally.

It can help you (as a couple) pay less tax if one of you earns significantly more than the other.

Example of using a Declaration of Trust:

  • John and Mary are in a civil partnership
  • They buy a property together, and they put in money 50-50
  • They rent out the property for £20,000 a year
  • HMRC will presume that each receives £10,000 – both John and Mary have to file a Self Assessment
  • But John earns £30,000 and Mary earns £70,000 – the tax they pay on this rental income will be very different (John pays £1,800, Mary pays £3,600 – together that’s £5,400)
  • It would be more advantageous for all of the rental income to belong to John, they can sign a Declaration of Trust together with a Form 17 and make John the 100% beneficiary of the rental income – the couple will now pay £3,800 in tax, plus Mary won’t need to file a Self Assessment anymore either
  • When they sell the property the can reverse the process so each gets to use their £12,300 Capital Gains Tax-free allowance.

Declarations of Trust aren’t just for couples putting money into a property equally.

You can use them if you buy property with friends or associates as well, and for other splits (for example, 70% – 20% – 10%).

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