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Declaration of Trust

  • 2 min read

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

What is a Declaration of Trust for?

Usually, HMRC will assume that a couple owns equal portions of a property i.e. 50–50. Both will need to file a Self Assessment and pay tax on their share. But if you sign a Deed of Trust, you can tell HMRC that what you earned from renting out your jointly owned property isn’t split equally.

What difference does it make?

Using a Deed of Trust can help you (as a couple) pay less tax if one of you earns significantly more than the other. Here’s how it works in action 👇

  • John and Komal are in a civil partnership
  • They buy a buy-to-let 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 from the rental income
  • John and Komal both have to file a Self Assessment
  • But John earns £30,000 and Komal earns £70,000, so the tax they pay on this rental income will be very different 
    • John pays £1,800, Komal pays £3,600 
  • It would be better (more tax-efficient) if the rental income was in John’s name to bring the whole tax payment down £3,800
  • To do this, they sign a Declaration of Trust together with a Form 17 to make John the 100% beneficiary of the rental income 
  • When they sell the property, they can reverse the process so each gets to use their £12,300 Capital Gains Tax-free allowance

Is this only for legally bound couples?

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

You can use them if you buy property with friends as well. And, the split doesn’t need to be 50-50. You can use them for whatever split you prefer e.g. 70% – 20% – 10% with three people.

 

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