Beneficial Interest in Property UK — Resulting Trusts, Constructive Trusts, and Co-Ownership

Resulting Trusts — Financial Contribution and the Legal Presumption

A resulting trust arises by operation of law where one person (A) contributes to the purchase price of property, the legal title of which is taken in another person's name (B). The presumption is that B holds the property on resulting trust for A in proportion to A's financial contribution to the purchase price. The resulting trust is a form of implied trust — it arises from the financial contribution without any need for a formal written trust deed. Examples of resulting trusts in landlord/property contexts: (a) a landlord provides the deposit for a buy-to-let mortgage in a family member's name — the landlord may have a resulting trust in proportion to their deposit contribution; (b) co-investors informally contribute to a property purchase without a formal trust deed — each contributor may have a resulting trust interest proportionate to their contribution; (c) a landlord pays off a mortgage without being on the title — this may give rise to a resulting trust (though the law on subsequent mortgage contributions is more complex than on the initial purchase price). The presumption of resulting trust is rebuttable: where there is a presumption of advancement (historically, from husband to wife or from parent to child), the presumption of resulting trust is reversed — it is presumed the transfer was a gift; the Equality Act 2010 s.199 has abolished the presumption of advancement from husband to wife (prospectively). Following Stack v Dowden [2007] UKHL 17, the Supreme Court has significantly downgraded the role of the resulting trust in domestic cases between cohabitees, preferring the constructive trust approach. In commercial/investment property cases (unlike domestic cohabitation), the resulting trust remains the primary analysis: Laskar v Laskar [2008] CA (mother and daughter buying investment property — resulting trust applied based on financial contributions). SDLT: where property is transferred subject to a resulting trust, SDLT is charged on the market value of the beneficial interest transferred — take specialist SDLT advice on any trust restructuring.

• Resulting trust: arises where A contributes to the purchase price of property taken in B's name; B holds the property on resulting trust for A in proportion to A's financial contribution
• Commercial/investment property: resulting trust analysis preferred (Laskar v Laskar [2008] CA); the proportionate financial contribution approach applies where parties are buying as an investment rather than as a shared home
• Stack v Dowden [2007] UKHL: in domestic cohabitation cases, the constructive trust has largely displaced the resulting trust as the primary analysis — courts look at the parties' whole course of dealing, not just financial contributions
• Rebutting the presumption: evidence of an agreement or arrangement inconsistent with the proportionate financial contribution can rebut the resulting trust presumption — for example, a family loan rather than a gift, or a specific sharing arrangement
• SDLT implications: transfers of beneficial interests (including on resulting trust restructuring) may attract SDLT; take specialist advice before any reorganisation of beneficial ownership

Constructive Trusts — Common Intention and Detrimental Reliance

A constructive trust arises in equity where it would be unconscionable for the legal owner of property to assert their full beneficial ownership against another person. In the property law context, the constructive trust requires: (a) a common intention between the legal owner and the claimant that the claimant should have a beneficial share; and (b) detrimental reliance by the claimant on that common intention. The common intention may be expressed or inferred. The two-stage test in Lloyds Bank plc v Rosset [1991] AC 107 (House of Lords): (i) Express common intention: the parties have actually discussed that the non-legal owner would have a share — even if not in writing; detriment can then be minor (e.g. moving in, doing some decoration). (ii) Inferred common intention: there has been no express discussion — but the non-legal owner has made financial contributions to the acquisition or mortgage payments; from these contributions, a common intention to share the property can be inferred; Stack v Dowden [2007] and Jones v Kernott [2011] UKSC developed this analysis significantly. Stack v Dowden [2007] UKHL 17: a cohabiting unmarried couple bought a house jointly as legal co-owners; the House of Lords held that even where the legal title is joint, the beneficial ownership can be different from 50:50 if the parties' intentions differ; the whole course of their dealings (who paid what; who contributed what; their arrangements about money) is relevant; the starting point for joint legal owners is joint beneficial ownership, but this can be displaced by evidence of different intention. Jones v Kernott [2011] UKSC 53: further developed the law — where it is clear the parties' shares have changed but their new shares cannot be identified, the court will impute an intention that is fair in the circumstances. This is a more flexible approach that moves beyond purely financial analysis. Quantification: once a constructive trust is established, the court must quantify the claimant's share — based on the parties' expressed or inferred intention; if no specific share is established, the court will impute a fair share (Jones v Kernott). Detrimental reliance: the claimant must have relied on the common intention to their detriment — examples: paying mortgage instalments; renovating the property; paying household expenses to free the legal owner to pay the mortgage; giving up a career opportunity to manage the property.

• Constructive trust: requires (i) common intention that the claimant has a beneficial share; and (ii) detrimental reliance on that intention — the legal owner cannot then assert full ownership
• Express common intention (Lloyds Bank v Rosset [1991] HL): the parties have actually discussed sharing; even minor detriment then suffices (moving in; carrying out renovation); conversations need not be in writing but must be clear
• Inferred common intention: inferred from financial contributions to the purchase price or mortgage repayments — the traditional analysis; Stack v Dowden [2007] expands this to the whole course of dealings
• Stack v Dowden [2007] UKHL / Jones v Kernott [2011] UKSC: for joint legal owners, starting point is joint beneficial ownership; displaced by evidence of different intention from the whole course of dealings; court can impute a fair share if specific shares cannot be identified
• Quantification: once constructive trust established, courts award a proportionate share based on the parties' expressed, inferred, or (last resort) imputed intention — Jones v Kernott allows more flexible fair-dealing approach

Express Declarations of Trust — The Best Solution for Co-Ownership

An express declaration of trust in writing is the best and most certain way to establish the beneficial ownership of property between co-owners. Under the Law of Property Act 1925 s.53(1)(b), a declaration of trust respecting any land must be manifested and proved by some writing signed by the person declaring the trust — it does not need to be a formal deed, but it must be in writing. For landlords and property investors: where two or more individuals acquire investment property together, a formal Declaration of Trust (or Deed of Trust) should be entered into at the time of purchase specifying: (i) the beneficial shares of each co-owner (which can be unequal, reflecting different financial contributions); (ii) the allocation of income (rent) from the property; (iii) the decision-making process for management, letting, and disposal; (iv) the buy-out procedure if one owner wishes to exit; (v) the procedure for sale (who must agree; at what price). Married couples and civil partners: a Form 17 declaration (HMRC Form 17) can be used to notify HMRC that rental income from jointly owned property is to be divided in shares other than 50:50 — this has income tax implications; HMRC Form 17 requires a signed declaration of trust confirming the actual beneficial shares. SDLT: an express declaration of trust creating a new beneficial interest from one co-owner to another may be a chargeable transaction for SDLT if consideration (including the release of a mortgage) is given; gratuitous trust declarations are generally not chargeable but take specialist advice. Land Registry — Form A restriction: where beneficial interests in property are split between registered legal owners and beneficial owners who are not on the title, a Form A restriction should be entered on the title register to prevent the registered proprietors from overreaching the beneficial interests without the consent of all beneficial owners; this protects the beneficial owner whose name is not on the register.

• Express declaration of trust (LPA 1925 s.53(1)(b)): must be in writing signed by the declarant; the best way to establish co-ownership shares definitively; prevents disputes about who owns what percentage
• Deed of Trust: a formal document specifying beneficial shares; income allocation; management decision process; buy-out rights; sale procedure — recommended for all landlord co-investment property acquisitions
• HMRC Form 17: married couples and civil partners can declare unequal beneficial shares and have rental income assessed in those proportions for income tax; requires a trust declaration; Form 17 submitted to HMRC within 60 days of declaration
• Form A restriction at Land Registry: where beneficial owners are not registered as legal proprietors, a Form A restriction prevents the registered proprietors dealing with the property without the beneficial owners' knowledge; protects against unauthorised disposals
• SDLT on trust restructuring: creating or varying a beneficial interest by declaration of trust can be a chargeable transaction for SDLT where consideration (money or mortgage assumption) passes; gratuitous declarations generally exempt but specialist advice required

Overriding Interests and Third-Party Beneficial Interests in Conveyancing

For landlords and property investors acquiring freehold or leasehold property, the risk of a third party having an undisclosed beneficial interest that constitutes an overriding interest is a significant title risk. Under the Land Registration Act 2002 (LRA 2002), certain interests override a registered disposition (a sale or mortgage) even if they are not registered at HM Land Registry. Overriding interests include: (a) legal easements and profits appurtenant; (b) interests of persons in actual occupation (s.29(2)(a)(ii) and Schedule 3 para 2 LRA 2002): if a person is in actual occupation of registered land at the time of a registered disposition, their interest (including a beneficial interest under a trust) will override the disposition and bind the purchaser — unless the purchaser makes enquiries and the occupation was not disclosed; (c) short legal leases (7 years or less). The practical risk for landlords: where a property is registered in one person's name but another person occupies the property (a partner, a family member, a person who has contributed to the purchase), that occupying person may have an overriding interest in the property that could bind a purchaser or lender. Due diligence: a prudent purchaser (and their conveyancing solicitor) must: (i) make enquiries of the registered proprietor about any persons in actual occupation and the nature of their interests; (ii) attend and inspect the property before exchange to identify any occupiers; (iii) obtain written confirmation from all adult occupiers that they will vacate on completion and that they have no interest in the property. Mortgage lenders are particularly at risk from overriding beneficial interests — Williams & Glyn's Bank v Boland [1981] HL: a wife who had made contributions to the purchase price of a family home had a beneficial interest that constituted an overriding interest binding the bank's mortgage — the bank lost priority to the wife's interest. Following Williams & Glyn's Bank, lenders now routinely require all adult occupiers to sign a consent form (CON 29DW or the lender's own occupier waiver) before advancing funds.

• Overriding interests (LRA 2002 Schedule 3 para 2): a beneficial interest held by a person in actual occupation overrides a registered disposition — even if not registered at Land Registry; binds purchasers and mortgagees
• Williams & Glyn's Bank v Boland [1981] HL: a wife's beneficial interest (from financial contribution to the purchase price) in actual occupation overrode the bank's mortgage — the bank lost priority; transformed conveyancing practice
• Due diligence: before exchange, enquire about all persons in actual occupation; inspect the property; obtain written confirmation from all adult occupiers that they claim no interest and will vacate
• Occupier consent forms: mortgage lenders require all adult occupiers to sign a consent/waiver form before advancing funds, confirming they acknowledge the mortgage and will not assert an overriding interest
• Trust of land: where two or more persons are registered as joint legal owners of property (whether or not in equal shares), a trust of land (TOLATA 1996) arises automatically — the trustees hold on trust for the beneficiaries; the court can make orders for sale or partition under s.14 TOLATA 1996 if the trustees/beneficiaries cannot agree

Frequently asked questions