Beneficial Interest in Property: What Is It & How To Prove It

Emily Gordon BrownLegal Assessment Specialist @ Lawhive

Updated on 6th November 2023

In England and Wales, when it comes to who owns a property, there are actually two parts to it. 

First, there’s the legal ownership. This is who officially owns the property as registered with the Land Registry.

Second, there’s something called the beneficial interest, or beneficial ownership. This is about the people who have the right to live in or enjoy the property or the money if it’s sold. Legal owners and beneficial owners might not be the same people. 

The reason this split exists is because the law in England and Wales says that all properties are held as trust. This makes sure everyone’s interests are protected when it comes to property, and it is clear who has what housing rights in the event of a relationship breakdown.

What is beneficial interest in property?

Beneficial interest in a property means you have the right to live in or own a part of a property, even if you're not the legal owner. This often comes up when more than one person is involved with a property, like couples, family members, or friends.

Imagine you and your partner are both chipping in money to buy a house, but only your partner's name is on the official ownership papers. Legally, your partner owns it. But, because you both contributed money and had an agreement, you might still have a a share in the house even if you're not the legal owner.

Beneficial interest can be established in a few ways. Sometimes, it's through a written agreement that clearly says who gets what. Other times, if you've put money into the property, it's assumed you own a share based on your investment. It can also happen if you've contributed in non-money ways, like taking care of the property.. 

Beneficial interest vs. legal ownership

Legal ownership is when a person's name is officially on the property deed. This means they have the legal rights to the property, and they are in charge of it. They can decide to sell or rent it to others. The legal owner's name is recorded on the title register at HM Land Registry, which is the public record of property ownership.

On the other hand, beneficial interest is about the financial or occupancy rights that someone has in a property, even if they aren't the legal owner. So, if you have a beneficial interest, it means you have certain rights, like a portion of the rent from the property, the right to live in it, or a share of its value. 

However, the name of the beneficial owner isn't necessarily listed on the public property register at HM Land Registry. 

How to establish a beneficial interest in property

Sometimes, it’s not easy to prove for sure whether a beneficial interest in property exists. Couples might disagree about what happened or what their intentions were regarding the property. When there’s such a disagreement, the only way to resolve it is to go to court and ask for a declaration. 

In this the court will examine the facts and make a decision, but they can be cautious about finding a beneficial interest. So, it’s a good idea to seek the opinion of a property lawyer who is experienced in these matters.

If a partner who doesn’t legally own a home wants to establish a beneficial interest, they an initiate legal proceedings in either the County Court or the High Court under section 14 of the Trusts of Land and Appointment of Trustees Act 1996.

Heterosexual couples engaged in the last three years can use section 17 of the Married Women’s Property Act 1882, and same sex couples who have had a civil partnership agreement in the last three years can use section 74 of the Civil Partnership Act 2004 to clarify their beneficial interests in property. 

Express declaration of interest 

An express declaration of trust is a clear and documented agreement between people about who owns what in a property. This is the most common way to show that someone has a beneficial interest in a property.

This kind of trust is usually written down in a contract, a declaration, or a deed. It involves the legal owner, who is called the trustee, signing the document to confirm the beneficial interest. These express trusts are legally binding, meaning they are official and clear about who gets what rights in the property.

Example: Jack and Jill live in a house together, but Jill is the sole owner. She paid for the deposit and handles all the mortgage payments. But Jill signs a trust deed saying that Jack should have a 50% share in the property. This agreement is legally binding and would be enforced by the courts as long as it’s valid. 

For an express trust to be valid, it needs to have:

1. Clear intention: It must be clear that the person created the trust intended to make it. 

2. Defined subject matter: It should be crystal clear what’s part of the trust and what isn’t. 

3. Named beneficiary: The person who will benefit from the trust must be definite and certain, with no doubt. 

Resulting Trust

A resulting trust comes into play when the law assumes that there should be a beneficial interest in the property, even if there is no written agreement. 

For example, if Simon and Dave buy a property together, but the legal ownership of that property is only in Simon's name. Dave's financial contribution may mean he should have a beneficial interest in the property that’s proportionate to the amount he contributed.

A resulting trust can also come about if someone tries to give away a property but doesn’t do it correctly. In these cases, ownership can revert back to the original owner. 

Constructive Trust

A constructive trust happens when the court considers that one party should act as a trustee for another party based on their behaviour. This can happen in a situation known as ‘common intention trust.’ where both parties agree on how ownership of a property should work, but they don’t create a written declaration of trust. If one of the parties relies on this agreement and faces loss as a result, a constructive trust can be applied. 

For this to work, the terms of the informal agreement need to be clear enough for the court to recognise a constructive trust. 

To establish a constructive trust, usually three things need to happen: 

1. Both parties must have a shared intention that the non-owner will have a beneficial interest in the property; 

2. There must be evidence of discussions that show this shared intention (i.e. letters, emails or text messages); 

3. The non-owner must have acted to their disadvantage based on the belief that they would both have a beneficial interest.

For example, if Leon gives up his secure tenancy and job to live in his partner’s, Christina's, house and take care of her children, he may have a case for a constructive trust even if he didn’t financially contribute to the property’s purchase. 

Can you transfer a beneficial interest in a property?

Yes, you can transfer a beneficial interest in a property to someone else, but there are specific conditions you need to follow. To make this transfer, the property must be held as tenants in common.

With tenants in common, co-owners have defined shares in the property, which allows for the transfer of their interests. If the property's legal owners are already set up as tenants in common and there's a document like a deed of trust in place, transferring a beneficial interest to someone else involves using a specific document called a deed of assignment.

Things can become more complex when there's no written agreement or document that spells out how the property shares are divided or the ownership terms. In these cases, the court might need to step in to sort things out.

Once the property is correctly set up as tenants in common, you can transfer all or part of the beneficial interest in the property to a new beneficiary. However, things can get trickier, especially if there's a mortgage on the property because you might need the lender's permission to go ahead with the transfer. 

How to prove beneficial interest in a property

Proving beneficial interests in a property can be challenging as they aren’t always put down in writing, and this can lead to disputes between owners or partners over their financial contributions, ownership, or intentions.

If the court gets involved to determine the existence of a beneficial interest, they’ll look at: 

• Documented agreements: If there's a written agreement, declaration of trust, or a deed of trust, these documents can provide strong evidence of a beneficial interest.

• Financial contributions: Records of financial contributions, such as mortgage payments, property upkeep, or renovation costs can help prove interest.

• Witness statements: Statements from witnesses who can confirm the agreements and contributions can strengthen a case.

• Emails and correspondence: Any written communication discussing the property's ownership can be useful evidence.

• Self detriment: If someone acted to their own disadvantage, thinking they would acquire a beneficial interest, such as contributing to mortgage payments, home improvements, or contributing to family life related to the property, this can prove a beneficial interest in property, too.  

How are shares in a property decided if beneficial interest is established?

Basically, the court decides how shares in a property should be split if beneficial interest is established based on the agreements, intentions and actions of both parties. 

If the partner who doesn’t legally own a home successfully shows they have a beneficial interest, then the court can determine how much of the property each party owns based on its value. This calculation of their shares should be decided when the property is sold or if one party buys the couple out, not when the couple stops living together. 

If one person stays in the property and spends money on improvements that increase the value of it, the court may take this into account when deciding on shares. 

The court will also consider any clear declaration about the property shares made by the parties. If that doesn’t exist, they may look for evidence of a common intention regarding the property shares.

Tax on beneficial interest in Property

Taxation of beneficial interest in property can be complex and is subject to various factors and circumstances. The tax implications depend on the specific type of beneficial interest, the parties involved, and how the interest is acquired or disposed of.

1. Capital Gains Tax (CGT)

Capital Gains Tax is typically a significant consideration when dealing with the transfer or disposal of beneficial interests in property.

Transfer of Beneficial Interest

When a beneficial interest in property is transferred from one person to another, it may be subject to Capital Gains Tax. The tax is calculated based on the gain in value from the original acquisition to the transfer. However, there are exemptions and reliefs that may apply, such as the Principal Private Residence Relief, which can exempt a primary residence from CGT.

Multiple Owners

If multiple individuals jointly own a property and one of them transfers their beneficial interest to another, this could trigger CGT. The extent of the tax liability depends on various factors, including the proportion of the interest transferred.

Gifts

If a person gifts their beneficial interest in a property, it is treated as a disposal for CGT purposes. The donor may be liable for CGT on any gain in the property's value since its acquisition. However, if the property is a primary residence and meets certain conditions, it may qualify for full or partial CGT relief.

2. Inheritance Tax (IHT)

Inheritance Tax may apply when beneficial interests in property are passed on through inheritance. The value of the property is included in the deceased person's estate for IHT purposes. However, there are tax-free allowances and reliefs available, such as the Residence Nil Rate Band, which can reduce the IHT liability on the family home.

3. Stamp Duty Land Tax (SDLT)

If a beneficial interest in property is transferred, and there is a significant change in the ownership structure, Stamp Duty Land Tax may apply. The amount of SDLT depends on the value of the property and the consideration paid (if any) for the transfer.

4. Income Tax

Income Tax may come into play if a beneficial interest is acquired and generates rental income. The recipient of the beneficial interest could be liable for Income Tax on the rental income they receive.

Get legal help with beneficial interest in property

At Lawhive, our property solicitors are here to provide you with affordable and accessible legal help online. If you have questions or concerns related to beneficial interest in property, whether as an owning or non-owning party, contact us today for a no-obligation fixed fee quote. 

We are dedicated to assisting you in understanding and addressing your legal matters concerning property rights. Tell us about your case, and we'll be happy to get you started on the right path.