Beneficial Ownership v Legal Ownership: what is the difference?
When it comes to the law, there are two different types of ownership: beneficial ownership, and legal ownership. On the surface, it might seem that there is very little difference between the two but sometimes it can be helpful to dig a little deeper and understand the nuances.
Beneficial ownership and legal ownership are terms applicable to any possessions, although are most regularly used when referring to property, either buildings or land.
What is Legal Interest?
The legal owner of property is the one whose name is listed on the Title Deeds at the Land Registry. It might be an individual or more than one person. This person (or persons) is allowed to use the property, sell it, transfer it, or simply possess it if that is what they want to do. The legal interest gives them the right to control that building or land.
What is Beneficial Interest?
Beneficial interest differs slightly because it allows someone the right of any benefits to the property, without having their names registered as the legal owner. The benefits could cover many scenarios and may include a portion of the proceeds in the event the property is sold, or if the property is rented, a share of the rental income. There are also practical benefits that occur, which might include a right to live in a property.
As their names are not registered on the title deeds, it can be challenging to uncover who the beneficial owners of a property might be, or indeed what benefits might be extended to them, other than for the Legal Owner.
Are the Beneficial Owner and Legal Owner the same person?
The beneficial owner and the legal owner are often the same person, but that is not always the case. There are many instances in which people will buy a house or other property together. It might be as a home for themselves, or as an investment. They will automatically be considered joint legal owners, and as a result, they are both entitled to the entire property. As co-owners, they may decide to own the house as tenants in common, and in that instance, they could specify the size of each share.
Regarding beneficial ownership, the default position is that it mirrors the legal ownership parameters. The co-owners may decide to change the shares here too, depending on their personal circumstances. If, for example, the owners are business partners rather than life partners, they might decide to give one party a bigger share if they will be managing or maintaining the property, or if one contributed a higher deposit.
Unmarried couples still have fewer rights than their married counterparts and where a married couple would share legal ownership by default, an unmarried individual could still give a partner beneficial ownership.
If you are concerned about anything to do with legal and/or beneficial ownership of a property, consult an expert, such as a firm of https://www.parachutelaw.co.uk/ Ascot solicitors. When it comes to tax, there can be benefits to reapportioning beneficial ownership, as income tax is based on that rather than legal ownership. Shifting the balance can see all parties benefit from a reduction in tax due.
If you’d like more information about tax implications of either type of ownership on your property, there is information from Tax Insider which is worth reviewing. Always seek independent advice from a financial adviser or perhaps Ascot solicitors or elsewhere before making any legally binding commitments.
The two types of ownership can be formally outlined using a Declaration of Trust agreement, which sets out the interests of each owner.