Transfer of equity describes the legal process used to add or remove someone from the title deeds of property (adding or removing them as an owner). There’s no sale of the property and at least one of the original owners will stay the same. You might transfer equity for several reasons, including:
When all parties agree on the outcome, equity transfers can be straightforward – partly because there are no searches required as there would be with a sale. But it’s important to look at each transaction individually, as it can become more complicated when mortgages or disagreements are involved.
If you currently own a property with one or more co-owners, any of your shares could be sold and you could change legal ownership. Equity simply refers to the amount of your home that you own. The transfer of equity could go from a couple to a single owner, for example. Alternatively, you might want to transfer a property from single ownership into two names. To summarise, a transfer of equity could occur when:
The transfer must leave at least one legal owner and a property can’t have more than four owners, but there can be as many people involved in the transfer as necessary. This might occur when removing a partner but adding multiple children.
A current market value may need to be stablished so a value can be assigned to the share being transferred. The shares of what each individual will hold can change depending on your situation – for example, a couple might want to hold 50% interest, whereas a parent might want to transfer more or less to a child.
Equity is the legal term for the percentage of your property you own. That’s the property value, minus your outstanding mortgage. For example, if your home is worth £300,000 and you have £120,000 remaining on your mortgage, you have £180,000 equity.
So, if one person is giving up ownership of the property, they will receive their percentage share of the equity. And when there is a mortgage involved, you’ll need the consent of the mortgage lender to go ahead with the transfer.
Similarly, if there is no – or limited – equity, you can remortgage with an existing lender or secure an arrangement with a new lender. The finance they provide can be used to buy out the other person. A transfer of equity is used to then reflect the new legal ownership.
The example above is just one example of an equity transfer – one person leaving the title deeds. But you might transfer equity for several reasons, including:
When all parties agree on the outcome, equity transfers can be straightforward – partly because
there are no searches required as there would be with a sale. But it’s important to look at each
transaction individually, as it can become more complicated when mortgages or disagreements are
involved.
The transfer must leave at least one legal owner and a property can’t have more than four
owners, but there can be as many people involved in the transfer as necessary. This might occur
when removing a partner but adding multiple children.
A current market value may need to be established so a value can be assigned to the share being transferred. The shares of what each individual will hold can change depending on your situation – for example, a couple might want to hold 50% interest each, whereas a parent might want to transfer more or less to a child.
Whether you want to add more names to the deeds of a property or remove them, you should seek legal advice. A lawyer can only act on one person’s behalf, so it’s likely you’ll have more than one solicitor involved, especially in the case of a separation. This ensures everyone gets the independent advice they’re entitled to.
But what are the key stages a lawyer will guide you through?
When a mortgage is involved, as is typically the case, the person leaving the deeds will also need to be released from those terms and conditions. After all, a mortgage is a type of credit agreement. You can’t leave the deeds of the property without sorting out the debt you used to secure it initially. For clarity, equity is the legal term for the percentage of your property you own. The rest will be owned by the bank. As such, you can’t release it without informing and agreeing with them.
There are a couple of ways you can do this. Which method you use will depend on the circumstances of your transfer of equity:
You can also transfer equity as a gift, although this is less common. The transfer occurs without any money changing hands. For example, parents can gift houses to their children.
If you want to transfer property into joint names – after marriage, for example – you could also be charged stamp duty. This happens when the house is subject to a mortgage. Even though no money changes hands, they are taking on half of the mortgage debt. As such, anything above the threshold will be subject to stamp duty land tax. Gov.uk use this example to illustrate:
If you are adding a name onto the title to your property, we highly recommend that a Deed of Trust is put in place to set out the ownership of the property, particularly if you are holding unequal shares. Our trust specialists in our private client team can advise on this further and our equity release team will be able to refer you if necessary.
Don’t worry if you’ve still got questions. Transferring equity can be a daunting prospect for home owners. We’re here to ease any stresses or concerns you might have. Here are some of the questions we get asked most frequently, but don’t hesitate to contact us if you’ve got more.
Does property transfer have tax implications?
The tax implications of an equity transfer depend on the nature of the transfer. There’s currently no capital gains tax charged on transfers to your spouse, civil partner or a charity. Anyone else, including children, and the property is subject to the capital gains tax (CGT). You get an annual exemption of £11,000, and anything beyond that will be charged at 18% or 28%. The tax rate depends on whether you’re a basic or higher rate taxpayer, as well as the size of the gain.
To reduce the CGT, you could transfer the property, or a share, into your spouse’s name to utilise two annual allowances and potentially reduce the CGT. For instance, if you wanted to transfr to a child. This is all something a conveyancer could help you with. A transfer of equity like this could be treated as a potentially exempt transfer (PET) for inheritance tax (IHT) purposes. The liability only reduces gradually over seven years if the value is greater than £325,000. After seven years, it would no longer form part of your estate.
What is chargeable consideration?
The amount of property being transferred is what comes under ‘consideration’. This could include
both equity and the value of the mortgage. It will depend on the size of this total whether you
pay stamp duty.
But that’s not all it depends on. It’s also down to the nature of the transfer. For example,
couples who are legally separating or transferring equity by court order, don’t need to pay
stamp duty. Because individual situations can affect what’s paid, it’s important to discuss
expected costs with a solicitor.
Is stamp duty payable when transferring a property?
It’s advisable to get legal or tax advice before attempting a transfer of equity, especially if your situation is complex. Professional guidance will always make an equity transfer run smoothly and eliminate any stress for you.
Can you transfer equity to someone under 18?
You will need to set up a trust deed Legally, someone under 18 can’t hold the property but this document allows a trustee to hold it until they turn 18 and the equity is transferred to them.
Do you have any further questions?
How a transfer of equity works depends quite a bit on your individual circumstances. It’s advisable to get legal or tax advice, especially if your situation is complex.
Professional guidance will always make an equity transfer run smoothly, and eliminate any stress for you.
Our expert team can help you with all kinds of equity transfer, including:
Feel free to contact us for tailored advice. Our conveyancing team will be able to help. We’re always here to act in your best interest.
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Manak Solicitors is a trading name of Manak Lawyers Limited registered at Companies’ House in England & Wales Company Number: 09877015
Manak Lawyers Limited is authorised and regulated by the Solicitors Regulation Authority under SRA No. 627738, 628462 & 648124
Manak Lawyers Limited does not accept service by fax or email
Manak Solicitors is a trading name of Manak Lawyers Limited registered at Companies’ House in England & Wales Company Number: 09877015
Manak Lawyers Limited is authorised and regulated by the Solicitors Regulation Authority under SRA No. 627738, 628462 & 648124
Manak Lawyers Limited does not accept service by fax or email
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