Buying a property with another person is one of the biggest financial commitments many people will make. Whether purchasing with a partner, friend, sibling or other family member, it is common for one buyer to contribute more towards the deposit than the other.
At the time of purchase, this may not feel like a problem. Everyone may be in agreement, and the focus is usually on completing the transaction. However, unequal deposits can create uncertainty later if there is no clear written record of how the parties intended the property to be owned.
A Declaration of Trust is often used to record these arrangements. It sets out each person’s financial interest in the property and helps establish how the equity should be treated in the future.
Why Unequal Deposits Can Create Problems
Imagine two people buying a property together for £350,000.
One buyer contributes a £70,000 deposit. The other contributes £10,000. They then agree to share the mortgage payments equally.
Several years later, the property is sold. A question arises:
Should the person who contributed £70,000 receive that contribution back before the remaining equity is divided, or should all sale proceeds be split equally?
Without a written agreement, the answer may not be obvious.
Different owners may have very different expectations about what should happen. One person may assume their larger contribution is protected. The other may assume that, because the property was bought jointly and the mortgage was shared, the equity should be divided equally.
This can become particularly difficult if the relationship changes, one owner wants to move out, or the property has increased significantly in value. A Declaration of Trust helps reduce uncertainty by recording the parties’ intentions from the outset.
What Is a Declaration of Trust?
A Declaration of Trust is a legal document that records the beneficial ownership of a property.
Beneficial ownership means the financial interest in the property. This is different from legal ownership, which is recorded at HM Land Registry. Two people may both be registered as legal owners, but their financial interests may not be equal.
A Declaration of Trust can help answer questions such as:
- who contributed the deposit;
- whether ownership shares are equal or unequal;
- how the sale proceeds should be divided;
- what happens if one owner contributes more money later;
- how mortgage overpayments or renovation costs should be treated;
- what happens if one owner wants to sell or be bought out.
For buyers contributing different amounts towards a property purchase, these questions can be particularly important.
How Can a Declaration of Trust Protect an Unequal Deposit?
There is no single way to deal with unequal deposits. The Declaration of Trust should reflect what the owners have agreed between themselves.
One common approach is a return of deposit model.
Under this arrangement:
- the property is sold;
- the mortgage and sale costs are paid;
- the larger deposit contribution is returned;
- the remaining equity is divided between the owners.
This approach is often used where one person contributes more at the start, but both owners intend to share future growth in the property’s value.
For example, if Owner A contributes £70,000 and Owner B contributes £10,000, the Declaration of Trust might state that each receives their original contribution back first, with the remaining equity then divided equally.
Another option is to record fixed ownership percentages from the outset, such as:
- 70% and 30%;
- 60% and 40%;
- 80% and 20%.
In those cases, the equity is usually divided according to the agreed percentages when the property is sold.
The most suitable structure depends on what the owners intend at the time of purchase.
What Happens If the Property Increases in Value?
Many people focus on protecting the original deposit but overlook what happens if the property changes in value.
For example:
- property purchase price: £300,000;
- deposit contribution by Owner A: £60,000;
- deposit contribution by Owner B: £10,000;
- property value on sale: £400,000.
In this situation, several questions may arise:
- should the increase in value be shared equally?
- should it be divided according to fixed ownership percentages?
- should the larger deposit contribution receive a proportionate share of the growth?
- should each owner receive their deposit back first, with the remaining equity divided equally?
A Declaration of Trust can record the agreed position clearly. This is important because a property may increase or decrease in value over time, and the method of calculation can make a significant difference to what each person receives.
What If the Property Falls in Value?
It is also important to consider what happens if the property is sold for less than expected.
For example, there may not be enough equity to repay each person’s original contribution in full after the mortgage and sale costs have been paid.
A well-drafted Declaration of Trust can deal with this by explaining how any shortfall should be shared. It may state, for example, that the available equity is divided proportionately, or that the parties share any loss in a particular way.
This can help avoid disputes where the property market changes or the sale proceeds are lower than anticipated.
What About Mortgage Overpayments and Renovations?
Property ownership rarely remains static. Over time, one owner may make additional contributions.
For example, one owner may:
- make mortgage overpayments;
- fund an extension;
- pay for substantial renovations;
- contribute additional lump sums;
- pay for major repairs or improvements.
Without a written record, it may be difficult to establish whether those payments were intended to affect ownership shares or whether they were simply contributions towards the property.
Many Declarations of Trust include provisions dealing with future financial contributions. Some allow additional payments to be recorded in a schedule signed by both owners. This can help ensure that significant payments are formally recognised if the property is sold later.
What If One Owner Wants to Leave?
Another common issue is what happens when one owner wants to end the arrangement.
This may happen if:
- a couple separates;
- one owner wishes to relocate;
- a friend or sibling wants to buy elsewhere;
- a family member wants their investment returned;
- one party can no longer afford the mortgage.
Some Declarations of Trust include buy-out provisions. These give one owner the opportunity to buy the other owner’s share before the property is placed on the open market.
The document may also set out how the property should be valued if the owners cannot agree. For example, it may provide for an independent valuation.
Having a clear process can reduce the risk of disagreement and provide greater certainty if circumstances change.
Unequal Deposits and Tenants in Common
Where buyers contribute different amounts towards a property purchase, the property is often held as tenants in common.
This allows each owner to have a distinct beneficial share in the property, rather than owning the property jointly as a single shared interest.
Holding property as tenants in common can be useful where:
- deposit contributions are unequal;
- ownership shares are unequal;
- future contributions need to be recognised;
- the owners want their share to pass under their Will;
- the parties want the Declaration of Trust to reflect separate financial interests.
Properties owned in this way will often have a Form A restriction entered at HM Land Registry. This restriction indicates that the property is held on trust and helps protect the position where there is more than one beneficial owner.
When Is a Declaration of Trust Most Useful?
A Declaration of Trust for unequal deposits is commonly used where:
- one buyer contributes a significantly larger deposit;
- parents or relatives provide money towards the purchase;
- unmarried couples buy a property together;
- friends purchase a property jointly;
- siblings or family members invest together;
- mortgage payments will be equal but deposits are unequal;
- future contributions may not be equal;
- the owners want a clear record of their intentions.
The document is usually prepared during the purchase process, when contributions and expectations are easiest to identify and record. It can also be put in place later, provided all owners agree.
Key Takeaway
Contributing more towards a property deposit does not automatically guarantee that the contribution will be treated in a particular way if the property is sold in the future.
A Declaration of Trust for unequal deposits allows co-owners to record how ownership should be structured, how sale proceeds should be divided, and how future financial contributions should be treated.
For anyone buying property with unequal deposits, a clear written agreement can provide certainty, reduce the risk of misunderstanding, and help avoid disputes later.