Declaration of Trust

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.

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.

Using a Deed of Trust can help you (as a couple) pay less tax if one of you earns significantly more than the other. Have a look at this real-life example to put it into practice:

  • Harry and Sam are in a civil partnership
  • They purchase 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
  • Harry and Sam both have to file a Self Assessment
  • But Harry earns £30,000 and Sam earns £70,000, so the tax they pay on this rental income will be very different
  • Harry pays £1,800, Sam pays £3,600
  • It would be more tax-efficient if the rental income was in Harry’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 Harry the 100% beneficiary of the rental income
  • When they sell the property, they can reverse the process so each gets to use their £3,000 Capital Gains Tax-free allowance

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