Declaration of no interest in property
16/12/2019
A declaration of no interest in property legally confirms the property is held on trust and that one of the beneficiaries has no financial benefit in the property. Whilst joint owners of property normally want to have as much beneficial interest as possible, there are cases where it is their interest to have a declaration to confirm a zero beneficial interest:
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Stamp Duty Land Tax - often for when there is a Joint Mortgage Sole Proprietor such as a Mum and Dad helping their child buy a property.
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Sharing property income - specifically for married couples for Form 17 tax on income from buy to let property.
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Divorce - where there is a divorce and the judge makes an order to keep a property in joint names due to the mortgage lender, but one of the parties has zero beneficial interest.
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Protection - where someone solely owns a property that their partner is moving into.
In this article we will examine these in more detail and explain how a declaration of no interest in property can be made, the tax notes from HMRC, the risks of having no beneficial interest and the costs of drafting the required evidence. It may help to read our article on Beneficial Ownership vs Legal Ownership as it explains what is a beneficial interest as it isn't just about the income from the property, it also includes the rights of use of the property.
Do you need a declaration of no interest in property?
Our solicitor specialises in drafting these declarations including:
- Deed suitable for HMRC purposes for SDLT and Income tax
- Clauses to protect the party with zero interest
- Drafted by a qualified solicitor*
We charge a fixed fee for the work and our costs are very low. Click to get a quote or call now on 0333 344 3234.
* It is a criminal offence for anyone other than a regulated solicitor to draft a deed of trust for you. Our deeds are drafted by a specialist deed of trust solicitor.
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Declaration of no interest for Stamp Duty Land Tax Purposes
Jointly buying a property with your parents or an unmarried partner (different SDLT rules apply to married couples) is normal nowadays in the light of ever increasing property prices. The issue is that if any of the joint owners own another property, or have previously owned another property, then there are stamp duty implications. These are:
First Time Buyer Relief
HMRC states, "In order to count as a first time buyer, a purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling or an equivalent interest in land situated anywhere in the world...If the property is purchased jointly, all the purchasers must meet these conditions.". The maximum stamp duty relief you can get is £5,000.
A declaration of no beneficial interest can be drafted to confirm that the parties who have previously purchased a property have no interest in the property. This will only work if the parties who will be legal owners qualify as . Second home stamp duty is 3% of the purchase price on top of the normal rate of stamp duty (use our online stamp duty calculator).
Often joint purchasers aren't looking to benefit from the transaction; the purpose is to help their child or partner get onto the property ladder using their joint salaries for the mortgage. HMRC acknowledges that this may the case and further states under This would have to be evidenced in writing
. Any future entitlement to capital proceeds from the sale of the property, to income or to occupy the property would mean that they do have a beneficial interest."
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To confirm you have no beneficial interest the joint owners of property must draft a declaration of no interest such as a deed of trust or declaration of trust. A deed of trust is more robust than a declaration of trust and can include protective clauses for the parties with no benefit, whereas a declaration of trust is just a simple 'one liner' confirmation of the beneficial ownership. We cover off below the risks of opting for just a declaration of trust.
Difference between legal owner and beneficial owner
Property in England and Wales will have a legal owner and also a beneficial owner. They are normally the same person, but not always. A legal owner is registered as the owner at the Land Registry. You can only have 4 legal owners. The beneficial owner, is the person or people who can benefit from the property; income such as rent or increase in value and the benefit of its use. You can have as many beneficiaries as you like and there is no centralised register to confirm who has a beneficial interest in land however it is documented within a legal document such as a deed of trust.
Beneficial interest vs equitable interest? They are the same. A beneficial interest is also known as an equitable interest in land.
Example of a legal owner and beneficial owner structure: a husband owns a buy to let where he is the sole legal owner and a 100% beneficial owner. His wife isn't working and so wants to share the property income with her but not add her to the legal title as a legal owner. This way he benefits from her income tax allowance. The husband drafts a deed of assignment (this is a declaration of no interest) and assigns 100% of the beneficial interest to his wife - known as a transfer of beneficial interest in property. At the end of the transaction the husband is still the sole legal owner, but his wife has 100% of the beneficial/equitable interest and from the date of the deed can declare the income in this way.
If you are planning on transferring beneficial interest to your married partner then these articles are essential reads:
- How to transfer ownership of house to wife or spouse
- Stamp duty on transfer of property between spouses
- Capital Gains Tax on Property for Married Couples
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Declaration of no interest for Property Income Tax Purposes
As shown in the example above, property income can be shared between married couples in a tax efficient way. If married couples are both on the legal title then HMRC requires the arrangement to be documented in a formal way and reported to them in a Form 17. A verbal agreement will not suffice as they state
"Please complete this form (Form 17) if you want to be taxed on your actual shares (known as `actual basis'). You'll also need to provide evidence that your beneficial interests in the property are unequal, for example a
declaration or deed
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Declaration of no interest in Divorce Proceedings
During divorce proceedings a judge may make an order for the family home to remain in the joint names of the couple, however that the property is beneficially owned 100% by the wife. There will normally be an order to confirm that the husband has no beneficial interest and a future date as to when his name can be removed from the legal title.
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Declaration of no interest for Protection
As unromantic as it may sound, it is advisable for unmarried couples to draft a declaration when they start living together in a property that is owned solely. The law doesn't protect unmarried couples, however it does married couples. The party moving in could make a future claim to the beneficial interest through their contributions toward the property - known as a Constructive Trust.
Example of an unmarried couple: Jane is the sole legal and beneficial owner of her flat in London. Tom moves into the flat and starts paying money toward the bills, mortgage and even helps pay a lump sum off of the mortgage. Tom is assuming this is giving him a beneficial interest in the property, however Jane assumes this is similar to a rent payment. Jane and Tom break up and Tom instructs a solicitor to prove his claim to a beneficial interest in the property. Tom wouldn't be able to do this if Jane had drafted a declaration and agreed with Tom that he had no interest in the dwelling.
We have a specialist solicitor who can help where your if there is a dispute in beneficial ownership - call now on 0333 344 3234 or get in contact here.
Frequently Asked Questions
How can you make a declaration of no interest in property?
Whilst you can make an oral declaration, it is both advisable to draft a legally enforceable document and also a requirement for HMRC. The following are documents that can be used and we have links so you can read more into how they are used:
- Deed of Trust - used when buying or if you already own the property and is a robust legal document that can include a number of protective clauses such as how to sell, who is liable for the property costs, who is to maintain the property and how to transfer shares between the parties.
- Deed of Assignment - used if you already own the property and are looking to assign just the beneficial interest to someone with the potential to add in additional protective clauses such as how to force a sale.
- Declaration of Trust - used if you already own the property and are looking to assign just the beneficial interest to someone without any other legal protection such as how to force a sale. It is not a deed and as such can be disputed.
What is included in a declaration?
The declaration will include:
- Property address
- Full names of the legal owners
- Full names of the beneficial owners
- Beneficial share split (so if no beneficial interest then 0%)
- Date of declaration
What are the risks of a declaration of no interest in property?
We have examined the benefit of having a zero beneficial interest, however here are some of the risks:
Force a Sale
As a non-legal owner of a property you have no right to force the sale of a property and exit the arrangement.
Example of mum and dad helping their child: Jane and Peter helped their daughter Michelle buy a property. They are joint borrowers on the mortgage, but only Michelle is a legal owner. After a year Michelle stops paying the mortgage and the relationship with her parents breaks down. Jane and Peter are having to pay the mortgage repayments for Michelle, however this is stretching their finances. Jane and Peter aren't able to force a sale as they aren't legal owners and don't have a beneficial interest. They only chose to sign a declaration of trust that doesn't have provisions to allow the property to be sold by them.
Jane and Peter could have drafted a deed of trust that stated the scenarios in which they would be allowed legally to force a sale such as if Michelle failed to adhere to the terms of the mortgage offer.
No Control
Example of unmarried couple breaking up: Janet and James are unmarried. Janet is the sole legal owner of the property and assigns 100% of the beneficial interest to James using a declaration of trust because James isn't working. The relationship breaks down and James looks to sell Janet's property. Janet is saying the property is hers and only drafted the declaration because she thought she'd be protected because the property is legally hers. James instructs a solicitor and the legal fees escalate.
Janet and James could have drafted a deed of trust to confirm what happens if the relationship breaks down. James could have included in the deed of trust a clause on how long he would give Janet before he sold. In this example it is clear that Janet exposed herself financially regardless of whether there was a declaration or a deed.
No right to any future increase in property value
Whilst at the outset a declaration of no interest is what the parties intended, if over the life of of the property ownership there is further investment into mortgage repayments or development of the property, because there was a declaration then the party will still receive no benefit. Under these circumstances it is advisable to draft a loan agreement so that the money spent is repaid. We can help draft a loan agreement so get in contact if you need our help.
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