Legal and Beneficial Title in Property
Readers of our blog may be interested to know that the distinction between legal and beneficial interests/title regularly confuses land and property owners.
What is the difference?
A person with legal title to property is the person registered at the Land Registry or named on the title deeds. This person is responsible for the property and will be the person required to enter into any deed or agreement affecting the property.
A person with a beneficial or equitable title enjoys the value that the property represents. For example, a person with beneficial title in a let property will be entitled to the rental income that the property generates together with the price achieved on a sale. A beneficial interest can also encompass a right to occupy.
Importantly, the legal title cannot be partitioned in the same way as the beneficial title. A joint tenancy is a legal interest in land ( which assumes that the beneficial interest interest is held equally between the number of legal owners). A tenancy in common is a beneficial or equitable interest and can be divided between owners in whatever proportions are required. When a person passes away, the legal title automatically reverts to the other owner(s) whilst, conversely, the deceased’s beneficial title in the property can pass to another person under their Will.
Why is the distinction important?
In the majority of cases, the legal and beneficial title in a property tends to be vested in the same person or people. The confusion begins when the two types of title become separable.
It is possible for a property to be legally owned by one person but beneficially owned by another. A good example is two trustees holding a property on trust for a beneficiary. The Trustees hold the legal title (i.e. they are the owners of the property at HM Land Registry and are responsible for it) but the beneficial title belongs to the beneficiary (i.e. if the property is sold or generates income, this becomes part of the trust for the beneficiary). Similarly, a bank can have beneficial title in the property under a mortgage but the borrower retains the legal title.
Taxation on property is generally concerned with the beneficial title as this typically embodies an income or a capital gain.
Although a confusing concept, the distinction and separation between legal and beneficial title can prove very useful.
This article first appeared in the East Anglian Daily Times, 12th September 2018.
Sam Read is a solicitor in the property department at Barker Gotelee Solicitors in Suffolk.