What is a Beneficial Interest in Property?

When it comes to owning property, understanding the concepts of beneficial interest and the differences between legal interest and beneficial interest can be crucial for making informed decisions. The starting assumption is that the beneficial interest in a property follows the legal interest; however, these interests can be different. In this guide, we will explore the essentials of legal and beneficial interest, providing you with the necessary insights to grasp this important aspect of property ownership so that you can ensure your interests are protected. 

What is Legal Interest?  

The legal owner(s) is the person(s) registered on the Title Deeds of the property at the Land Registry.  

The legal interest gives the owner the legal rights to the property, allowing them to inhabit, sell, or transfer the property as they wish. In short, it gives them a right of control over the property. 

What is Beneficial Interest?

The beneficial owner(s) is the person(s) who has a right to the benefits of the property; however, they are not registered on the Title Deeds of the property at the Land Registry.  

The benefits of the property could be financial in nature, such as the right to a share of the rent or a proportion of the sale proceeds if the property is sold. The benefits can also be practical in nature, such as the right to reside in the property. You do not need to be a legal owner of the property to have a beneficial interest in it.  

Types of Joint Property Ownership & Beneficial Interest 

Property can be owned jointly in various forms, and the way the ownership is structured can have an impact on a person’s interest in the property. Understanding the various types of joint ownership is important to help you choose the option that works best for you.

Joint Tenancy vs. Tenancy in Common 

When it comes to property co-ownership, joint tenancy and tenancy in common are two primary structures.  

Joint tenancy means that all the owners own all the interest in the property jointly; there are no distinct or separate shares. Given that all owners jointly own everything, when the first owner passes away, all the interest in the property automatically passes to the surviving owners. This is called ‘survivorship’. 

Tenancy in common means that the beneficial interest is held in distinct and individual shares. These shares can be even (for example, 50/50), or they could be in whatever proportion the owners choose. Being tenants in common allows the owners to have more control over the shares of the property.  

Since each owner has a separate share in the property, on an owner’s death, their interest will be distributed according to the provisions of their Will, if they have made one, or under the intestacy rules if they have not. The beneficial interest in the property does not automatically pass to the surviving owners.  

Below is a brief summary of the impacts and differences of joint tenants and tenants in common.  

Feature	Joint Tenants	Tenants in Common
Share of Interest	Each party jointly owns all the interest	Each owner has a distinct share in the property
How the interest passes on death of an owner	By survivorship to the remaining living owners automatically, regardless of what is in a Will.	Not by survivorship, either according to the owner’s will or by intestacy
Impact on Beneficial Interest	Uniform beneficial interest among tenants	Proportional beneficial interest based on shares

In joint tenancy, all co-owners have equal shares and rights to the property. The concept of the right of survivorship means that upon the death of one co-owner, their interest automatically transfers to the remaining co-owners. This can simplify succession; however, it may not be how the owner wants to distribute their estate on their death.  

Conversely, tenancy in common allows for distinct and possibly unequal shares. Each tenant’s share forms part of their estate, which can be transferred according to their Will. This offers flexibility, allowing co-owners to decide what happens to their share. 

Equitable vs. Legal Ownership 

Equitable ownership relates to the rights enjoyed by those with beneficial interest, while legal ownership pertains to the title held officially. This division is fundamental in property law. 

Legal owners are responsible for the property’s title, but equitable owners benefit from the property’s use and income. For example, a trustee may hold legal title, while beneficiaries enjoy the property’s benefits.

Aspect	Legal Ownership	Equitable Ownership
Title	Held by legal owner	Not held
Benefits	No direct benefits	Access to use and income
Responsibilities	Administrative and legal	Enjoyment and rights

Understanding the distinction helps clarify roles and responsibilities, especially in trust scenarios. Legal owners must act in the interest of equitable owners, ensuring that the latter’s rights are protected. 

How Beneficial Interest is Established 

Given that beneficial interest is not registered on the Title Deeds, it can be difficult to determine the respective beneficial interests in a property. As stated, the starting point is the assumption that the beneficial interest in a property follows the legal interest, so it is important to establish how the beneficial interest is held—especially if the starting assumption is not the case.  

Below is a short summary of various ways to establish and record beneficial interests.  

Formal Agreements:  

Trust Documentation –  

If a property is an asset of a trust, then the trust document will set out the legal owners (the trustees) and also the beneficial owners (the beneficiaries of the trust).  

Declaration of Trust –  

This is a legal document which sets out the shares in which a property is owned and how the proceeds of sale will be divided. A declaration of trust records the financial contributions to a property and so is useful when different owners are contributing different amounts.  

Informal Arrangements:  

If the beneficial interests in the property have not been formally agreed and recorded, then documentary evidence is key to establishing beneficial interest.  

Financial Contributions –   

Records of contributions towards the property, such as mortgage payments, can demonstrate beneficial interest. 

Correspondence –  

Emails or letters discussing the intentions and arrangements regarding property use can serve as evidence. 

Such documentation helps substantiate claims, providing a clear record of the arrangements. It also aids in resolving disputes by outlining the intentions of the parties involved. 

Changing Beneficial Interest 

Beneficial interest can change over time, either through formal agreements such as declarations of trust or changes to the financial contributions to the property.  

In certain circumstances, it can be beneficial to transfer or gift part of the beneficial interest in a property to a third party—for example, a parent transferring part of the beneficial interest in the property to their adult children.  

This will have various tax implications and is something you should consult with a solicitor about before doing, as there are lots of factors to consider.