Glossary · UK
What is Deed of Covenant?
A legally binding written promise to make regular payments (historically used for tax-efficient giving to charity or family members) or to take on specific ongoing obligations, such as shared repair costs.
Full Definition
A deed of covenant is a formal, signed and witnessed legal promise to do something -- most often to make a series of payments -- which is enforceable even though no payment has been made in exchange for the promise (unlike an ordinary contract, which generally needs 'consideration' on both sides). Deeds of covenant were historically a common way to make tax-efficient regular gifts to charities or, before more modern rules, to family members, since payments under a properly drafted deed could be treated as made net of basic rate tax with the charity reclaiming the difference. Gift Aid has now largely replaced deeds of covenant for charitable giving because it is simpler to set up and does not require a minimum commitment period. Deeds of covenant are still used today outside the tax context -- for example in leasehold property, where a new leaseholder or a management company enters into a deed of covenant with a freeholder or neighbouring leaseholders to comply with the lease terms or to share the cost of maintaining shared structures such as a roof or drainage.