Beneficial Interest in Property

What does beneficial interest in property mean?

A beneficial interest in property gives someone the right to share the benefits of a property, even if they are not a legal owner. Specifically, it gives someone the right to:

• Live in the property
• A share of the rental income
• A share of the proceeds when the property is sold

The person with a beneficial interest is called a beneficial owner.

Beneficial interests are usually defined as a percentage, such as 40%. This means the beneficial owner is entitled to receive 40% of any sale proceeds or rent.

How can I get beneficial interest in property?

The law presumes that legal ownership and beneficial ownership are the same thing unless something happens to split the ownership. This can occur in three ways:

1. Express trust

The most common way to create a beneficial interest is through an express trust. This is where the legal owner signs a trust deed or written agreement declaring that the legal owner holds the property ‘on trust’ for someone else, the beneficial owner.

For example, a mother could declare that she holds the property on trust for her son, or a cohabiting couple could declare that they hold the property on trust for themselves in 70/30 percent shares to reflect their individual contributions toward the purchase price, rather than holding the property equally.

2. Resulting trust

Sometimes, the law will presume that a beneficial interest has been created if there has been a financial contribution. For example, if Person A pays part of the purchase price for a property that is registered in Person B’s name, the law will impose a ‘resulting trust’ where B holds the property on trust for the benefit of A relative to A’s contribution.

3. Constructive trust

A constructive trust arises when there is a common intention that someone has a beneficial interest in the property, even if they did not contribute to the purchase price. For example, if Person A moves in with Person B and pays the mortgage, or pays for a new kitchen, the court may decide that they behaved this way because there was a common intention to share the property. After all, it would be very unusual to pay someone else’s mortgage for no financial gain.

Is beneficial interest the same as legal ownership?

Beneficial ownership is not the same as legal ownership. Broadly:

• The legal owner is the ‘official’ owner of the land, whose name appears on the title deeds at HM Land Registry. The legal owner has a right of control over the property, which means they can decide to sell or lease it.
• The beneficial owner owns the ‘fruits’ of the property, including income and the right to occupy. Their name does not appear at HM Land Registry and a member of the public cannot find out who the beneficial owners are..

It is very common for a person to be both the legal and beneficial owner at the same time – but it is not always the case.

Why does there need to be a difference between legal and beneficial interest?

No more than four persons can be the legal owners of property in England and Wales. By law, those persons have equal ownership.

However, this may not reflect the reality of the situation, especially if one person has contributed more to a deposit (for example) and therefore wants more ‘interest’ in the property. By creating beneficial interests, you can achieve a fair result.

How do I change the beneficial interest of a property?

Assuming a deed of trust already exists, you can transfer the beneficial interest in property to another person with a deed of assignment. This changes the beneficial ownership of the property without changing the legal title, which is helpful if there is a mortgage since changing the legal title would require the mortgage lender’s consent.

Special rules apply to joint tenancies. Joint tenants have equal rights to the whole property and co-own it together. To change the beneficial interest, you would first need to sever the joint tenancy and change the legal title to tenants in common. Multiple steps are required and there may be tax and other implications to consider. Specialist legal advice is a must.

How we can help

Whether you’re looking to claim a share, create a trust, or change ownership rights, our experienced property litigation solicitors are here to help. Speak to a lawyer by:

• Filling in our online enquiry form below; or
• Calling us on 020 7485 8811