In this article
Property ownership in England and Wales are divisible into legal ownership (the registered owners on the Land Registry) and beneficial interest, otherwise known as beneficial ownership (the people who have the right to occupy or enjoy the property or the proceeds of sale). This is because the law states that all properties in England and Wales are held as a trust, allowing this division.
Due to the complex nature of law in this area, you should only treat this blog as a general guide. If you have a case that you think we can help with, contact our team via 0203 007 5500 or info@brittontime.com.
What is a beneficial interest in property?
A beneficial interest in a property can take a number of different forms. It may provide an individual with a financial share in a property, or just provide the right to occupy the property even if they do not legally own the property.
While most people own their property as both legal and beneficial owners, it is possible to be just a legal owner or just a beneficial owner. For example, parents may hold a property on trust for their children. This means that, despite being the legal owners of the property, the parents may not have an entitlement to any sale proceeds.
In some cases, people may be unaware that they own a beneficial interest in a property. For example, where an individual did not contribute to the initial purchase price of the property, but has contributed to the maintenance, mortgage costs or added value to the property in any way, they may have an entitlement to a beneficial interest in that property.
Beneficial interests are typically expressed as percentages. For example, if parents were to contribute £20,000 to help their child purchase a property valued at £200,000, they would have an entitlement to a 10% beneficial interest in the property. While this example relates to contributing to the purchase price of a property, the same principle applies when contributing to the mortgage or adding value to the property, say by paying for renovations.
The effect of this is that each person with a beneficial interest in a property will share in profits and losses and the risk of fluctuations in the value of the property.
Is beneficial interest different to legal ownership?
Yes, the rights in relation to the property differ depending on if you own a legal ownership or a beneficial interest. The legal owner remains in control of the property and they retain the ability to sell or lease the property. Additionally, the legal owner’s name will appear on the title register at HM Land Registry.
A person with a beneficial interest in a property will have an entitlement to a percentage of the rental income of the property, a right to occupy a property or a share of the value of the property. Unlike the legal owner, the beneficial owner’s name is not necessarily noted on the public property register at HM Land Registry.
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Establishing a beneficial interest in property.
Express trust:
An express trust is generally the most common way a beneficial interest in a property will be evident. An express trust involves the legal owner (the trustee) signing a trust deed or written agreement acknowledging the beneficial interest. This deed defines the shares of the beneficial interest of the property and may set out terms for the sale of the property and the sharing of the proceeds of sale. As it relates to property, the trust must be in writing and signed and witnessed to be legally binding.
For instance, a father could sign a declaration of trust to say that he holds the property for his son. In doing this, the father would hold legal ownership of the property and the son, as the beneficiary, would hold a beneficial interest.
In order for an express trust to be valid, it requires the following legal formalities:
- There was an intention to create a trust (i.e., as in the example, intent of the father to hold the property on trust for his son);
- Clear definition of the subject matter of the trust (i.e., confirming that the property and no other assets form part of the trust);
- Certainty of the person to benefit from the trust (i.e., the son).
Resulting trust:
A resulting trust arises when the law presumes that a beneficial interest exists. There are two types of resulting trust. The first is through a financial contribution to the purchase price of the property. A resulting trust is a reflection of this contribution.
For example, a mother may pay 50% of the purchase price of a property registered in her daughter’s name. This contribution to the purchase price of the property would entitle the mother to a 50% beneficial interest in the property.
The second type of resulting trust is where someone has given away a property but failed to do so fully or properly, which means that the ownership of the reverts back to the person who attempted to give it away in the first place.
This could occur if the owner of a property held in an express trust to allow a beneficiary to occupy the property and then the beneficiary dies without any provision for anyone else to benefit from the property itself. This can also happen when someone attempts to create an express trust over the property but the legal formalities are not followed properly.
Constructive trust:
A constructive trust will arise when the court assumes that an individual has a beneficial interest in a property, despite not contributing to the purchase price.
For example, if an individual moves in with their partner and contributes toward the mortgage, they would then have an entitlement to a beneficial interest as it would be unfair to deny them a beneficial interest. This would also extend to financing renovations that would add value to the property at the expense of the person paying.
Can you transfer a beneficial interest in property?
Transferring a beneficial interest relies on certain conditions. In order to transfer a beneficial interest, the property must be held as tenants in common. Before we can explore this, it should be understood there are two ways in which more than one individual can own a property: as joint tenants or as tenants in common.
Joint tenants are joint owners of a property where each person owns 100% of the property. This is common among married couples or civil partnerships and the main distinguishing feature is that when one joint owner passes away, the joint ownership automatically passes to the other owner or owners so that they own 100% of the property.
Tenants in common are joint owners that have defined shares of a property, and therefore can transfer their interest. If the legal owners of the property are already tenants in common, and a deed of trust already exists, the transfer of a beneficial interest to another person requires a document called a deed of assignment.
Complications regarding the shares of a property may arise when there is no written agreement or document outlining the division or terms of ownership. In some cases, the court will need to intervene, which is further discussed below.
Once held in the correct way, the whole or part of the beneficial interest in the property is now transferrable to the new beneficiary. This can become more complicated where there is a mortgage on the property as there is a requirement for the lender’s permission.
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Quantifying a beneficial interest in property.
There are two methods to quantify a beneficial interest. The first relates to the property value and the contribution from either party. This can happen through the written declaration of each parties’ respective share, assessing their contributions upon sale of the property, or if one party buys out the other.
The second way is that a party is able to transfer a specific portion of their share to another. If a person held 100% of the beneficial interest and wanted to transfer 45% of their share to the other free of charge, their share of beneficial interest would be 45% regardless of their contribution to the value of the property.
An important note, even if one party moves out of the property, it does not necessarily affect their beneficial interest with any further investments reflected in their share.
If the parties cannot reach an agreement on the value or extent of their beneficial interests in the property, the court will make an assessment and declare the nature and extent of their shares.
Remember...
It is important to keep written records of all financial contributions towards a property as it can be complicated to prove these at a later date.
How to prove a beneficial interest in property in court.
As outlined above, beneficial interests are not always recorded in writing. This may result in disagreements between owners or partners about their financial contributions, ownership or their intentions. When a situation arises in which the share of the property is not clearly expressed, the court can intervene and establish the existence of a beneficial interest.
The court will examine the contributions each party made towards the property and whether the individual was acting to their self-detriment, under the belief they would be acquiring beneficial interest. Often this involves contributions towards mortgage payments or renovations but may also include contributions towards family life.
The court will also examine witness statements and/or supporting documents, such as text messages, emails, or written exchanges, if they exist. This type of evidence can show the parties’ promises or intentions or agreements.
Notable Cases.
Oxley v Hiscock (2004)
Ms Oxley and Mr Hiscock were in a relationship but not married. The couple purchased a property in Mr Hiscock’s name, which was later sold when the couple separated. Although the claimant, Ms Oxley, only contributed 28% of the purchase price – in comparison to the defendant’s, Mr Hiscock’s, 48% – she claimed that, due to upkeep and mortgage payments, sale proceeds should be equally split. The court concluded that while Ms Oxley’s payments did not match the initial contribution, they did warrant 40% of the final sale price.
Dobson v Griffey (2018)
Ms Dobson and Mr Griffey were in a relationship but not married. In 2005, the couple purchased a farm in Devonshire as a family home, on which they conducted several renovations. The relationship broke down in 2012 and Ms Dobson moved out. Mr Griffey continued to live in the property for a further 5 years, conducting further renovations, before selling the property in 2017. The claimant, Ms Dobson, claimed her and the defendant, Mr Griffey, owned the farm jointly and thus entitled her to 50% of the final sale price. Mr Griffey argued no such agreement existed and that he had contributed significantly more to the renovations, both financially and physically. The court found no evidence of any agreement or for Ms Dobson’s claims and dismissed the claim in full.
What rights do non-owning cohabitants have?
If a property is only in one person’s name, other cohabitants do not have a right to occupy and are instead only entitled to stay if they have the homeowner’s permission. However, they may be able to stay in the home if they have a contractual agreement or rights by estoppel.
Estoppel is a remedy which the court can award where they consider a situation might be unfair. For example, person A has relied on the word of person B and acted to their detriment (say by giving up their job to care for children), then the court may prevent person B from going back on their word to person A if they made promises along the lines of “this is your home as much as it is mine”.
Estoppel may arise if the legal owner misleads the cohabitant into believing they would acquire beneficial interest, leading them to act to their own self-detriment to improve or finance the property or otherwise compromise their financial position.
Do you pay tax on a beneficial interest in property?
Income and capital gains tax
Determining the tax position of legal owners is relatively easy, however, determining the tax position of beneficial owners can be more complex. Any beneficial owners will be subject to income tax on all of the rent paid if it is a leased property.
Beneficial owners will also be subject to CGT on the proceeds of sale of any property if the value of the property has increased since it as purchased. This is only the case if the property was not used as their primary residence as there is a tax relief which applies to your home.
Inheritance tax
Inheritance tax in relation to beneficial ownership is also a complex matter. People must be very careful of IHT when considering gifting property as the tax rules are especially complicated in this area. If an individual transfers legal ownership of a property to another party but retains the right to live in or otherwise benefit from the property then they remain a beneficial owner for tax purposes. As such any beneficial interest they retain may still be subject to IHT.
Should this raise any questions regarding IHT, seek specialist legal and financial advice. If you have a case you think we can help with, contact our team on 0203 007 5500 or info@brittontime.com.
Stamp duty land tax (SDLT)
SDLT is a tax on the purchase of land and properties with values over a certain threshold. SDLT, in relation to a beneficial interest, is more complex and may not apply in all cases. SDLT will only apply to transfers of beneficial interest exceeding a value of £40,000.
How can Britton and Time Solicitors help?
We know how confusing and potentially costly beneficial interests can be. That’s why our initial consultations with our property solicitors offer you:
- Unlimited time to go through the details of your case and ask any questions you may have
- An overview of your legal standpoint and your available options
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To arrange your initial consultation with one of our solicitors, simply call us on 020 3007 5500.
Hi, looking for some advice for a friend. Person A has lived in their home for over 40 years (and own the property). They have had a partner (Person B) living at the property for the last 19 years, but Person B has never paid any rent and is not on the deeds. Both contribute to bills. Person B and Person A contributed to a house renovation extension approx 10 years ago. Is Person B entitled to any value of the property should they split up? Many thanks.