Declarations of Trust – Is Lender Consent Required?

This question has come up in every live webinar I’ve ever participated in. Also, I often see the question in Facebook groups, so the time has come for me to write an article on the subject which I can refer people to whenever the topic is raised.

Declarations of Trust have existed since the Christian Crusades and they are a legal tool used by every single conveyancing solicitor up and down the land. Rarely, if ever, will a solicitor recommend seeking consent from your mortgage lender. This is because solicitors know that a Declaration of Trust doesn’t compromise the mortgage lenders security.

There are also very good reasons not to seek consent. First and foremost, mortgage lenders don’t like granting it because they know nothing about the beneficiary. This would put them in all sorts of bother if they were to grant consent, not least of which might be money laundering regulations. Another reason this can cause a problem for mortgage lenders is that if they grant consent it may make it more difficult for them to repossess the property if you default on your mortgage. Therefore, if you request consent from your mortgage lender, expect them to decline or offer to remortgage in your joint names instead. For everybody’s sake, it is better not to ask, and that’s why solicitors take the stance described in my second paragraph above.

But so and so on Facebook said …

First, just because somebody said something on Facebook and somebody else agreed does not make it right. Facebook comments are full of tittle tattle, ignorance, uneducated opinion and in some cases some downright dirty tactics to secure business or besmirch a perceived rival. For example, mortgage brokers might well prefer you to remortgage and put the property into joint names, for reasons which should be self-evident to you, whether the broker admits it or not. I’ve read comments on Facebook posted by brokers suggesting the transfer of beneficial ownership is mortgage fraud. What a load of tosh that is! The worst it could ever be would is breach of contract, but only then if the mortgage T&C’s specifically prohibit the transfer of beneficial interest, which is extremely rare. Then you have cliques, where people support each others opinions on Facebook, making themselves out to be credible sources of information. In most cases they are not!

There are only two mortgage lenders I know of whose T&C’s specifically prohibit the transfer of beneficial interest for privately owned properties. They are CHL and Fleet mortgages.  Clauses prohibiting Limited Companies from transferring beneficial ownership are slightly more common in mortgage lending contracts (for example TMW have such a clause) but I cannot think of a single reason why a Limited Company would wish to transfer beneficial ownership anyway.

The bottom line is that unless your mortgage contract specifically prohibits the transfer of beneficial ownership then you can do it. Therefore, my advice is simple; ask an experienced, qualified, regulated and fully insured Barrister-At-Law to advise you on whether your mortgage lenders T&C’s prohibit the transfer of beneficial interest or not.

Unlike other professionals, Barristers cannot hide behind Limited Liability status if they are wrong. Essentially, when they give you advice they are personally guaranteeing you that they are right. If their advice turns out to be wrong you have recourse to them personally, with the support of their regulator.

You should also bear in mind that a Declaration of Trust alone might not be the optimal solution. Sometimes, your mortgage broker might be able to get you a better deal with a new joint mortgage. However, you will need to consider the costs of remortgaging in addition to the new mortgage payments. You will also need to consider the legal and tax implications of this.

If you do transfer a property into joint names, also bear in mind that Stamp Duty and CGT could be triggered. There is no CGT on transfers between spouses but there could be if you transfer legal and/or beneficial interest to anybody else, including a company. Similarly, Stamp Duty might also apply, even on transfers between spouses in some circumstances, so a tax consultation is always recommended, whichever option you choose.

Even if you do transfer legal ownership by remortgaging into joint names, a Declaration of Trust will usually be required to formally document the split of beneficial ownership between joint owners as ‘Tenants in Common’, especially if you want to split the tax consequences of ownership unequally.

A Declaration of Trust is not required if the property is mortgaged and registered as Joint Tenants, but income will then automatically taxed in equal shares between the joint owners. Where the intention is for legal ownership of property to be treated for tax purposes in unequal shares, a Declaration of Trust will be required and a Form 17 will need to be completed and submitted to HMRC to register the income split and the property ownership will need to be recorded by H Land registry as Tenants in Common.

In regards to how a Declaration of Trust is utilised as part and parcel of the BICT structure of incorporation, together with a Business sale agreement and a Clearing Agency Contract, you can link to Counsel’s briefing note to conveyancing solicitors and mortgage lenders in PDF format HERE.

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