The Transfer of Equity process – All you need to know! 🏠
Jul 13, 2020 | Shakeel Mir
Transfer of equity is the process of adding or removing someone from the title deeds of a property – in effect, of adding or removing them as the owner of that property. Transfer of equity is distinct from a sale as at least one of the original owners of the property will stay the same, however, the complete list of owners will change.
Reasons for Transfer of Equity
There are many reasons why you might want to transfer equity. Some of the most common include:
– Divorce or separation: If your relationship has broken down and you and your partner own property together, a decision will have to be made on what to do with this asset. Some couples choose to remain joint owners and sell the property, while others may want to remove one party from ownership so that the other party can keep the house to live in (often the case if the relationship also involves children).
– A new relationship: If you already own property and have started a new relationship, you might want to consider adding your new partner to the deeds of the house through a transfer of equity.
– Resolving joint ownership: It is becoming an increasingly common practice for people to pool their resources to buy property with friends or family. This is a practical way of getting onto the property ladder, but at some point later down the line, one owner may wish to buy out the others – to do so would require a transfer of equity.
– Tax efficiency: Transferring equity to children or other family members can be an effective way to increase your tax efficiency. The property can be treated as a gift, minimising the tax owed when transferring it. If you are considering transferring equity for tax reasons, it is highly recommended that you seek legal advice before taking any action.
Transferring equity can be a simple process when the property is wholly owned by the parties listed on the deeds and when everyone involved is in agreement, but it can become increasingly complex when factors such as mortgages, taxes, and parties in disagreement are involved. Ultimately, every transfer of equity is unique and should be treated as such.
If you are looking to transfer equity, it is advisable to obtain independent legal advice from an appropriately experienced property solicitor before taking any action. If you would like legal advice or assistance on the process of transferring equity please call us on 0800 086 2929, email firstname.lastname@example.org or complete our Free Online Enquiry Form.
What is the process for Transfer of Equity?
Once you have made the decision to transfer equity, your solicitor will help guide you through the process. If you are transferring equity as part of the divorce process, each party will have their own solicitor representing and advising them. Regardless of the number of parties involved in the process, the key steps are the same:
1. Take a copy of the title deeds: To start the transfer process, your solicitor will obtain an official copy of the title for the property. Your solicitor will review this to check for a mortgage or any other restrictions on the property. At this point, they will also check the identities of each party .
2. Prepare the transfer documents: Once the process has begun, your solicitor will next draw up the transfer deed document ready to be signed.
3. Notify third parties: For the transfer to be completed any third party involved in the property, such as a mortgage lender, bank or building society, will need to provide their written consent. If the property is being transferred subject to the current mortgage, the lender will need to be a party to the transfer deed.
4. Sign the deed: Once your solicitor has prepared the paperwork, the next step is to meet with them and an independent witness to sign it.
5. Notify the Land Registry: Finally, the details of the deed transfer will need to be passed on to the Land Registry. This will involve a fee which can range from around £50 to nearly £1000 – the exact fee is dependent on the value of the property.
How long does a Transfer of Equity take?
A simple transfer of equity can take around 4-6 weeks to complete. However, each transaction is different, and the time taken to complete the transfer can vary greatly. If there is a mortgage on the property, the transfer will take longer as you will have to wait to receive written consent from any lenders involved. Likewise, if the transfer is required as part of a larger legal dispute – for example, a divorce that is being resolved by the Court – the transfer may be held up until all disagreements have been resolved.
What if you have an existing mortgage?
If you have a mortgage on your property, which most people do, there are more things to consider when transferring equity.
Since the mortgage is a credit agreement and the person leaving or joining the lease will need to be either released from or accepted into that agreement, you will need to obtain the written consent of the lender before the transfer process can be completed.
If someone is added to the title, they will become liable for the mortgage, and the mortgage lender will need to run their own checks to ensure that that person is able to meet the responsibilities of the mortgage agreement and maintain payments.
Similarly, when someone is removed from the title, they are also leaving the credit agreement that the mortgage represents. As with any credit agreement, you cannot simply step away from it: you first must resolve the debt you still owe. If it is intended that the existing mortgage will be kept by the person whose name will remain on the property, the lender will have to be satisfied that that person will be able to make the necessary mortgage payments themselves.
If you are transferring your equity to another party and need to resolve your mortgage, there are several options available to you. You could pay off the mortgage, otherwise known as ‘discharging’ it. You could choose the aforementioned route of seeking approval from your lender to transfer your share of the property – and therefore the mortgage – as part of a buyout. Finally, if you want to take ownership of the property, you could re-mortgage the house with a new lender, using the funds you release to discharge the existing mortgage while using the surplus cash to finance a buyout of the remaining shares in the property.
Do you have to pay Stamp Duty on Transfer of Equity?
You may need to pay Stamp Duty Land Tax (SDLT) when transferring land or property. A number of factors are considered when determining whether you are required to pay SDLT, including the type of transfer and your marital status.
HMRC guidelines state that “you may need to pay SDLT when all or part of an interest in land or property is transferred to you and you give anything of monetary value in exchange.” It is important to note that “anything of monetary value” includes not just cash but also the value of any mortgage taken on as part of the transfer. HMRC go on to illustrate various scenarios in which you may or may not need to pay SDLT, including:
- If you transfer a share in a property to a partner when marrying, entering into a civil partnership or co-habiting, you may have to pay SDLT. In this scenario, you pay SDLT if the monetary value exchanged for the property (referred to as the ‘changeable consideration’) exceeds the SDLT threshold of £125,000. You only pay SDLT, at 2%, on the portion of the consideration that exceeds this threshold. So if the combined value of the cash you pay and the mortgage you take responsibility for is £200,000, you would pay SDLT at 2% of £75,000, or £1,500.
- If the transfer of equity is the result of a divorce, legal separation or the dissolving or a civil partnership, either achieved by private agreement or court order, SDLT does not apply. However, if an unmarried couple separate and one party takes a larger share of the property or buys out the other party completely, they will have to pay SDLT on any changeable consideration above the £125,000 threshold.
- If the transfer is a gift, in which case there would be no consideration as the receiving party is not exchanging anything for their equity, SDLT does not apply.
- Similarly, if you receive property under the terms of a will there is no need to pay SDLT.
The rules for when SDLT are applicable, when you need to notify the HMRC of the transfer of equity and exactly how much SDLT you owe are subject to consideration of many different factors. If you are unclear on whether your transfer will incur SDLT fees, it may help to talk to a solicitor with expertise in this field.
Transfer of Equity costs
There are two mandatory costs associated with any transfer of equity: the legal fees of the solicitor you contract to help process the transfer, and the Land Registry fee you must pay when notifying the Land Registry of the new deed.
Beyond that, there are many other fees that may apply depending on the circumstances of the transfer. For example, search fees if your lender requires new searches, if they are modifying the existing mortgage or if you are taking out a new mortgage.
If you are buying a share of the property or taking on a mortgage in excess of £125,000, you may also have to pay SDLT at a rate of 2% on anything above this threshold – though, as covered above, this charge may not apply in all circumstances.
Q. When would a transfer of equity take place?
A. A transfer of equity can happen in any situation in which someone wishes to either leave or join a property deed. You can transfer equity to a new partner or another family member, or gift it to your children. You can also transfer equity to an existing partner if you are separating or divorcing. It’s important to note that a transfer of equity is not the same as a sale: crucially, at least one existing owner must remain on the deed when a transfer is completed.
Q. Can I transfer equity to someone under 18 years old?
A. Yes, you can transfer equity to someone under the age of 18. However, someone younger than 18 cannot legally hold the property, so to get around this you will need to set up a trust deed. The trust deed designates a trustee who holds the property temporarily until the recipient of the transfer turns 18 and can legally receive the equity.
Q. What is a transfer deed?
A. The transfer deed is a legal document which officially transfers the ownership of a property. This deed is prepared as part of the transfer process and signed by all parties. There are several different transfer deed forms provided by the Land Registry for recording transfers of equity, the most common being the TR1 form, which covers the transfer of a whole property from one party to another. As with any legal document, this form must be completed accurately and signed with witnesses for the transfer to be valid: an experienced conveyancing solicitor can help with this.
Q. Do I need to contact my mortgage lender?
A. Yes. Regardless of the circumstances of the transfer, if your property has a mortgage you must contact your lender to notify them of any proposed changes and to obtain their consent. The lender may wish to investigate the context of the transfer themselves and will certainly perform checks on the continuing owner and any new owners to ensure that mortgage payments will still be met. Usually, the lender will contact your solicitor with a list of conditions they require to be met before they provide their consent.
Q. Do I need to pay stamp duty if I am divorcing?
A. No. As covered above, SDLT is not applicable if you are transferring equity as part of a divorce, legal separation or the dissolving of a civil partnership. However, if you are an unmarried couple separating and are not dividing the property equally, the party taking the larger share of the property may have to pay SDLT if the total consideration exchanged for that share exceeds the SDLT threshold of £125,000.
Q. Can the same solicitor act for the transferor and transferee?
A. The Law Society recommends that where a possible conflict of interest could arise during the transaction or in the future, then the same solicitor should not act for both the transferor and transferee. It is generally assumed that a conflict could arise where property transfers are involved. If the transfer of equity is for no monetary value, then one solicitor in the firm could act for both parties, or preferably two solicitors within the same firm to act for either party. However, the preference would be for the parties to instruct their own solicitors. Where there is to be any monetary consideration, the parties should instruct separate solicitors.
How Elite Law Solicitors can help
Regardless of your exact circumstances, transferring equity can be a daunting and complicated process. When factoring in the legal documentation, the need to obtain lender’s consent and the possibility of paying SDLT, obtaining expert legal advice and assistance from an appropriately qualified solicitor is highly recommended.
Shakeel is based in our Amersham office and regularly provides specialist legal advice on all aspects of property law to clients nationwide. We offer remote meetings to clients via telephone and video conferencing software so can assist you wherever you are based.
Make A Free Enquiry
If you are looking to transfer equity or have any queries relating to any of the issues discussed in this article, please get in touch with Shakeel by calling 0800 086 2929, emailing email@example.com or completing our Free Online Enquiry Form.
The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified property solicitors such as those within our firm.