Contributing to a property purchase? How to protect your investment!

September 15, 2017 3:31 pm

Contributing to a property purchase?  How to protect your investment!

If you are lending money to assist someone to buy a property you may wish to ensure that your contribution is protected.  This can be done by setting up a Declaration of Trust.

Who can benefit from a Declaration of Trust?

Children buying a property where their parent has provided a deposit.

Couples or co-owners, i.e. friends or business partners buying a property where they have contributed unequally or expect to contribute unequally i.e. one will pay for improvements or all of the mortgage payments.

When you want to gift a share of your property but you do not want to or cannot easily change the legal title, for instance if you have a mortgage.

If you have an opportunity to purchase council property and someone else is providing the deposit.

How do they work?

Property is bought and registered with the Land Registry in the name of the legal owners however, a Declaration of Trust sets out the shares in which the property is actually owned.  A Declaration of Trust can set out and reflect an individual’s financial contribution towards the purchase of a property so everyone who has contributed can get back what they put in, if the property is sold.  It can agree that the party who puts in the deposit can get their money back.  It can also detail other financial contributions such as interest on the amount lent and it can include provisions so that the mortgage payments and additional work done on the home can be recognised.

Further protection can be arranged by way of placing what is called a ‘restriction’ on the legal owners title, which ensures that your consent must be obtained in the event of any sale, re-mortgage or other disposition relating to land before it takes place.

It can reflect whether the contribution is a gift or whether you are investing in the property.  If it is a gift then the Declaration of Trust can record the date of gift (which is useful for tax planning) and can record that the gift may be just to your son or daughter and not to their parent (which may be useful should the relationship break down).  It could protect your contribution if your child’s relationship breaks down and may prevent costly disputes in those circumstances.

In summary a Declaration of Trust can:

Confirm ownership of a property.

Confirm the actual amount that you originally spent.

Reflect the owners wishes about how their contributions are repaid.

Prevent arguments when the property is sold.

If you would like to discuss a Declaration of Trust with us further then please feel free to contact us, phone 01522 687500 or email enquiries@pagenelson.co.uk