Confused about what a Transfer of Equity is? A Transfer of Equity is a change in the co-ownership status of a property. Unlike a sale of a property, where the property changes ownership in its entirety, a transfer of equity is where one of the existing parties remains on the title and another party or parties are either added or removed. The process has a lot of moving parts, so it's best to be prepared.
You might arrange a transfer of equity to:
- Change the percentage shares owned by the co-owners of a jointly owned property or buy out a co-owner's share in the property
- Add your spouse to the property's deed if you have married or remarried
- Remove an ex-partner from the deed if you have divorced
- Reduce future inheritance tax liabilities or take advantage of personal capital gains limits
What is Equity?
Equity is the value of a property after the cost of any outstanding mortgage is deducted from its market value at that time. For example, if you’d a mortgage of £50,000 on a property worth £200,000, you’d have equity of £150,000.
Why is expert legal guidance so important?
There are legal requirements and implications of a transfer of equity , starting with the fact that this process can result in a notable change of circumstances for yourself and your family. To protect your own interests, it is always better to engage a solicitor when the legal ownership of your home is involved.
What is consideration?
Consideration is the amount of the property that you will take over from the previous owner. If you pay Stamp Duty will be dependent on the size of the consideration. Consideration includes both equity (the value of the property) and the value of the mortgage. If a transfer of equity is given 50% of a £400,000 house, but there is a mortgage of £200,000, the portion would be £300,000 which would incur Stamp Duty. This is dependent on circumstances.
What is the process for transfer of equity?
A Transfer of Equity may on the surface be seen as a simple process, people can sometimes forget that it is a legal one. Legally a Transfer of Equity can be complex and you should always seek professional legal advice from a lawyer.
All parties involved will need to agree the terms of the transfer and in what shares each individual will hold the property.
The process depends on the type of transfer required:
- The property title will need to be obtained.
- Valuation of the property.
- Deed of Transfer signed.
- Remortgage completed, if necessary.
- Lender's permission if there is an existing mortgage.
- Stamp Duty Land Tax Return – this is only required for buy-outs involving sums of money over £40,000.
- Register the change of ownership at HM Land Registry.
If There Are No Mortgages Involved
The existing and new owners of the property sign the transfer deed in the presence of a witness and the conveyancer registers the transfer deed at the Land Registry. If the value of the transaction is greater than £40,000 then a Stamp Duty certificate will need to be completed and submitted to HM Revenue & Customs on your behalf.
If There is an Existing Mortgage
If there is a mortgage registered against the property, then the lenders consent may need to be obtained prior to the transfer, or in some cases, the mortgage may need to be paid off (redeemed). Where an existing mortgage will remain and the lender has consented to a new person being added to the title of the property, they will become equally liable for the mortgage and its repayment, along with the other joint owners.
If a party is being removed from the title, the lender will again need to consent to this. The outgoing owner must be released from their obligations under the mortgage. This will usually be done by insertion of a special clause in the transfer, which all parties to the transfer will sign including the lender. The lender will make financial checks to ensure that the remaining owner is financially capable of keeping up with the mortgage repayments.
As well as assisting with a smooth and efficient transfer of equity, GloverPriest’s property solicitors can help with arrangements for remortgaging if necessary.
What if the mortgage lender does not agree to the transfer?
In this situation, you will need to repay the mortgage before you can go ahead with the transfer. This can either be with a cash payment or a remortgage with a different lender who agrees to the transfer.
Will Stamp Duty apply to the Transfer of Equity?
If you are adding or removing a person to or from the property HMRC will require a Stamp Duty Land Tax form if the consideration for the share is more than £40,000. We will calculate your consideration and complete and lodge this form on your behalf as a part of our process.
If the consideration for the share in the property is more than £125,000 HMRC will require you to pay Stamp Duty Land Tax. We will contact you during your case if your transaction requires Stamp Duty Land Tax. For further information regarding Stamp Duty Land Tax please visit www.gov.uk/stamp-duty-land-tax-rates
If the transfer has arisen because of a matrimonial separation you will not be required to complete a Stamp Duty Land Tax form or pay Stamp Duty Land Tax.
Accountants may advise property owners to make a Transfer of Equity to their children or other family members. This financial sharing of the home can be more tax efficient and it is also referred to as a transfer of equity and might also been seen in Law as a gift.
A Transfer of Equity may involve stamp duty land tax and, in some cases, Capital Gains Tax. While we can advise you on what the stamp duty will be, you will need to talk to an Accountant about Capital Gains Tax.
How we can help
Our teams in each of our offices can help facilitate the entire process of a transfer of ownership for you, including:
- Reviewing the title deeds
- Preparing the transfer deed
- Obtaining the consent of your mortgage lender (where required)
- Arranging conveyancing checks and searches
- Amending your title deeds with the Land Registry
- Obtaining a Stamp Duty Land Tax certificate
- Helping to arrange remortgaging if required
Our residential property teams can also assist you with any other issues related to your home, including buying and selling, remortgaging and leaseholds.