Beneficial Ownership vs Legal Ownership

5 min read
When jointly owning a property you'll need to declare your ownership shares of the legal title, however did you know that your share of the legal ownership can differ from the beneficial split when buying as tenants in common? You'll need to know the difference between you beneficial ownership vs legal ownership and make sure you have this clearly documented in a deed of trust (read more about Deed of Trusts here). We specialise in structuring these joint ownership agreements so call us if you need any help after reading this article on 0333 344 3234 (local call charges apply).

The legal owner of property is registered at the Land Registry on the title deeds. They will also be stated within the mortgage offer as mortgage lenders require all legal owners to be jointly and severally liable for the mortgage. You can have a maximum of 4 legal owners registered on the title and they have control over when the property is sold or transferred. Legal owners are also known as nominees or registered owners.

Beneficial ownership is "an interest in the economic benefit of property". Your beneficial ownership in property reflects your share of any gain/loss from the property including rent and profit/loss on sale.

Joint Tenants vs. Tenants in Common

When there are joint legal owners, they hold the property on trust for each other; either as tenants in common (separate shares) or as joint tenants (owned 100% between a maximum of 2 legal owners - normally married couples or civil partners). The beneficial interest for the latter is simple, the married couples own 100% of the beneficial ownership so any gain or loss from the property is 100% theirs jointly (shared 50/50 on their tax return).

If you hold the property as tenants in common, then you can agree to hold the legal title on trust equally, 50/50, and then declare a separate beneficial interest that reflects your contribution towards the property. This is normally shown as a direct percentage of the amount of money paid towards the purchase deposit (purchase price less the mortgage), however it could take into account other contributions towards the property such as mortgage repayments and renovation work. Read this article which explains more complex beneficial interests.

*Fixed Fee – No Sale No Fee – On all Major Lender Panels

What is an example of beneficial ownership and legal ownership?

Jane and Tom are not married and want to buy a home with each other for £250,000. Tom doesn't want to be a legal owner, however he is contributing £100,000 towards the purchase price of the property. Jane and Tom agree to own the property as tenants in common and draw up a deed of trust to reflect their separate interest in the property. Jane is 100% the legal owner of the property and only her name is registered at the land registry as an owner of the property, however she only owns a 60% share of the beneficial ownership (£150,000 / £250,000) and Tom owns 40% (£100,000 / £250,000).

If in a few years Jane & Tom sell their property for £300,000, using their deed of trust to distribute the gain, Jane will receive 60% at £180,000 and Tom will receive 40% at £120,000.

If Jane & Tom were getting a mortgage, then the they would need to get the mortgage lender's consent to the deed of trust. Some mortgage lenders offer Joint Mortgage Sole Proprietor mortgages that suit relationships where one party on the mortgage doesn't want to be a legal owner. Read more about joint mortgage sole ownership mortgages here.

Why would you not want to be the legal owner?

These are just a few reasons why you may not want to or may not be able to be the legal owner on the title registered at the Land Registry but wish to be a beneficial owner:

You want to buy a property with a mortgage jointly but cannot yourself get a mortgage
Mortgage lenders will only allow you to be on the legal title of a property if you are yourself liable, along with any others on the title, to repay the loan. You can still, however, be a beneficial owner using a Deed of Trust and not be on the legal title - although the lender involved will need to be made aware of this.

We discuss one such scenario as this in this article - Joint Borrower Sole Proprietor Mortgage

You can check the Land Registry to find out who the legal owners are of a property, but although you can find out from it if there is a Deed of Trust in place for a property indicating how the beneficial ownership is shared, you cannot obtain details about who the beneficial owners are.

If Tom didn't want anyone to know he owns a share in this property he can choose not to be the legal owner and only be a beneficial owner.

Made a gain from sale of the property?

Capital gains from sale of a second home or rent from property income need to be split in accordance with your beneficial interest in the property. For example, you cannot share the beneficial interest in the property 50/50 and declare the income in your tax return 99/1.

You should speak to a tax specialist for further advice.

How do you find out who the legal owners are of a property?

As stated above, the legal owners of a property are registered at the Land Registry and you can search property ownership at the Land Registry here.

You cannot search for beneficial owners as the names of the beneficial owners are not registered at the Land Registry.

Do you need to tell HMRC if you own different shares?

The HMRC Form 17 Income Tax Declaration Form is used by married and civil partnership couples who want to declare unequal shares in a jointly owned property held as tenants in common. Without this form, the HMRC assumes that any income generated from the jointly owned property, such as rent, is shared equally (50/50). In cases where you own an unequal share of the beneficial interest in the property, you must complete a Form 17 and have a signed and witnessed Deed of Trust.

*Fixed Fee – No Sale No Fee – On all Major Lender Panels

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