When you are a homeowner, you may decide to transfer property ownership to a family member. This is a common practice as children reach adulthood and homeowners reach retirement age. There can be several reasons for a homeowner to make this decision. They may want to help a family member to get on the market. Another reason is that they may want to get their affairs in order for the future. Estate planning now can help family members when it comes to wills, inheritance tax and probate.
However, a lot of homeowners do not know the process of how to transfer property ownership to a family member. There are many key legal considerations the property owner and the new owner need to consider. In this article, we will look at the legal process involved in transferring a property to a family member. We will discuss the following regarding the property transfer process UK:
The legal process involved in transferring a property
The tax implications of property transfer
The key considerations for the original owner
How to gift a property
Selling property to a family member while complying with UK property law
Types of Property Transfers
Gifting the Property
There is a possibility that a property can be gifted to a family member. It’s the most common way to transfer property to a family member. A property can be gifted with a Deed of Gift which is sometimes known as a transfer of gift.
The homeowner would need to fill in a TR1 form (learn more in our guide to what is a TR1) to request to gift the property transfer. To be able to gift a property, the criteria are as follows:
The homeowner must not be under pressure, needs to be able to make the decision freely and should be sound of mind.
The property must be free of debt.
Gifting property to a family member does mean there are some tax implications. There is a risk of capital gains tax, inheritance tax and stamp duty. When you are gifting a property, you may have to pay capital gains tax if the child is not living at the property when you gift the home.
They could also be at risk of inheritance tax on the property if it’s worth over £325,000, and the person dies within 7 years of gifting the property to them.
Selling the Property
You can transfer the property by selling the home to a family member. They can buy the property at the market value.
This is the price the property has been valued by an estate agent. Or they can purchase the home at a reduced rate which is cheaper than the market value.
Whichever price is agreed on, a legally binding contract needs to be put in place. This purchase agreement should detail the property information, the price and any factors involved.
A deed would have to be put in place for the new ownership. Both parties involved would need to have a solicitor in place. Once the mortgage has been approved and the legal documents have been signed, they can transfer the title to the required name.
Transfer of Equity
The other option to transfer property ownership is with a transfer of equity. This is a legal process where the name of the property owner is changed on the property’s title deeds. This then changes all or part of the ownership of the property to the new name.
To do this, you need a deed of transfer which allows you to change part or all of the title deeds. In some cases, the original owner will stay on the deeds with the family member added to the deed.
This transfer deed then needs to be registered with the land registry. The deed needs to be signed by both parties and witnessed.
Legal Steps to Transfer Property Ownership
Step 1: Obtain a Title Deed
You need to obtain a title deed. The property will have been registered with the HM Land Registry and this deed will state clearly who is the current owner.
Step 2: Instruct a Solicitor
You will need to instruct a solicitor to take care of the legal side of the transfer. They will take care of the transfer deed form and ensure all legal steps are completed correctly.
Step 3: Complete the Transfer Deed
You then need to complete the TR1 form. This is required by law to transfer the ownership to a family member. The solicitor will obtain this from the Land Registry.
The title number, the address of the property, the transfer date and all the party names will need to be on the form.
Any title guarantees and the declaration of trust should also be on the forms. Both the transferor and transferee will have to sign in front of a solicitor.
Identification documents as well as the fee and supporting documents will need to be attached.
Step 4: Pay Stamp Duty (if applicable):
If the property is being sold or transferred with a mortgage, stamp duty on property transfer will need to be paid, depending on the property price. If the property is gifted, stamp duty will not have to be paid.
Step 5: Register the Transfer with the HM Land Registry:
You need to register the transfer with HM Land Registry. The legal team you have instructed will do this for you in most cases. You will have to pay the registration fee which varies depending on the price of the property.
Tax Implications of Property Transfers
When you want to transfer property ownership to a family member, you need to consider the tax implications:
Inheritance Tax
Gifting a property to a family member could put them at risk of inheritance tax. If the property is worth over £325,000, you could be at risk of paying inheritance tax.
It also depends on whether you live for over 7 years after gifting the property. If you pass away within 7 years, the family member will have to pay a reduced amount of inheritance tax. This is the following amounts you would have to pay as shown on GOV UK:
How long they live | The percentage of tax |
Under 3 years | 40% |
3-4 years | 32% |
4-5 years | 24% |
5-6 years | 16% |
6-7 years | 8% |
7 years and over | 0% |
Capital Gains Tax
Capital Gains Tax also may have to be applied if the property being transferred has increased in value since it was purchased.
The tax is the amount that is classed as profit which is the difference between the value of the property when gifted and the purchase price. This tends to be 18% for those who pay basic rax tax and will be 28% for those who pay a higher rate of tax.
If the property you are gifting is not your main home, you could also face the tax. If your child does not move into the property when gifted, and the property increases in value, the tax will be applicable.
Stamp Duty Land Tax (SDLT)
When transferring a property, stamp duty land tax may need to be paid Here are the circumstances of when it needs to be paid:
If the property being transferred for money is over £250,000, stamp duty will have to be paid.
If the transfer of the property comes with an outstanding mortgage, stamp duty will have to be paid. This will depend on how much share the new owner is taking responsibility for.
If the new homeowner already has an additional property, they will be at risk of an extra stamp duty land tax.
No stamp duty is due when the property has been gifted. Here is how much stamp duty you will have to pay when transferring a home:
Property value | Percentage of tax |
Up to £250,000 | 0% |
£250,000-£925,000 | 5% |
£925,000-£1,500,000 | 10% |
Over £1,500,000 | 12% |
Challenges and Risks for Homeowners
When you transfer a property, there is a chance you could lose control of the property. If disputes do occur, you will not have any rights to what happens with the property. The new homeowner could face financial issues and this could lead to debts with the property. You will also have no right to continue living on the property.
There is also the possibility that there could be a dispute between family members. One child may not agree that the other child should have ownership of the house. If no clear communication or legal agreement was put in place, it could cause battles between the family.
There is a risk of the homeowner being liable to pay tax when they transfer the property. It’s important to understand and plan for any tax implications.
Best Practices for Property Owners
Consult a legal professional before you decide to transfer the property. They will be able to offer you important legal advice. They can discuss any inheritance issues you may face and the implications of tax.
You need to have clear communication about the transfer once you have made the decision. Talk openly with family members and how it will affect them.
It’s best to also consider the long-term financial impacts. As a property owner, you need to think about the financial stability of the family member you are transferring the property to. You should also consider the effect on their own estate when they lose a property they own.
Legal and Regulatory Considerations
UK Property Law Compliance
You need to make sure that any property transfer complies with the UK Property Law Compliance. You need to make sure any transfer is correctly registered with the HM Land Registry and all legal documents need to be filled and changed correctly.
Tax Laws and Reliefs
You need to make sure that you comply with all tax laws. You will need to make sure you pay any necessary stamp duty, inheritance tax and capital gains tax.
Seeking Legal Advice:
You need to consult a conveyancing team who will ensure the transfer complies with UK property law. They will comply with all relevant regulations so you stay within the law. You could also discuss with tax professionals to help minimise tax liabilities.
FAQs
How do I transfer property ownership to a family member in the UK?
You could gift the property to a family member in the UK or you could sell the property to them. You could also do a transfer of equity.
Do I need to pay stamp duty when transferring property to a family member?
If you are gifting the property, you will not pay stamp duty. But if you are selling it to them or transferring equity, you may be liable to pay stamp duty. It depends on the house price and if this is your second home.
What are the tax implications of gifting a property?
You could face inheritance tax charges if the person gifting does die within 7 years of gifting the property. The Capital Gains Tax could also be applied if the property is not their only residence.
Can I transfer part of my property to a family member?
You could transfer part of the property with a transfer of equity. You will need to decide how much to transfer of equity to family member.
What legal documents are required to transfer property ownership?
You would need a transfer deed, a transfer agreement and title deeds to transfer property ownership.
Conclusion
When you want to transfer property ownership to a family member, you need to decide on how you want to do this. It might be that you decide to gift the property to a loved one.
You may find the best solution is to sell the property to them. There are tax considerations such as Stamp Duty and Capital Duty tax that you need to consider. You also need to consider the legal and financial impact on the homeowner and the family member.
It’s important to seek legal advice to help when you want to make this property transfer. You can consult with Lawhive’s property law experts who can offer you personalised advice.
Property lawyers will help ensure you stay compliant with the law while transfering property.