Transfer of Equity Solicitors
If you own a property with others, you can sell or change your shares through a transfer of equity, which changes who legally owns the home.
This could involve a couple separating, changing ownership of a property from one name to two, or replacing an ex-partner with someone else.
For a transfer of equity to be valid, the transfer needs to keep at least one legal owner, and a property can't have more than four owners, but multiple people can be involved. The value of the share being transferred may be determined based on the current market value of the property, and the distribution of shares can vary based on the situation.
At Lawhive, our transfer of equity solicitors can help you arrange a transfer of equity quickly for a fixed fee. To find out more and get a free quote for transfer of equity services, contact our legal assessment team today.
What is equity?
Equity is the legal term for the portion of a property you own. This is the property value minus any outstanding mortgage.
If one person is giving up ownership of a property, they should receive their share of the portion they own (the equity). If there is a mortgage involved, you need the lender's consent for the transfer of equity.
If there's little or no equity (i.e. the property value is less than the outstanding mortgage), it's possible to remortgage with the existing lender, or a new lender, to buy out the other person. The transfer of equity reflects the new legal ownership of a property.
Why transfer equity?
There are a few common reasons why a transfer of equity might be necessary. This includes:
What is the process for the transfer of equity?
Usually, equity transfers are straightforward. Unlike when you're selling a property, no extensive searches are needed. However, if all parties can't agree on a transfer of equity or there is a mortgage on the property, things can get complicated. Generally, the process is as follows:
Your solicitor will get an official copy of the property title deeds and check them for any mortgage restrictions;
They will then draft the transfer deed document for signing;
If there are third parties (such as mortgage lenders) involved, their written consent is needed;
Both parties sign the transfer deed in the presence of witnesses;
The deed transfer is registered at the Land Registry. There is usually a cost for this which varies depending on the property value.
What is a transfer deed?
A transfer deed is a legal document used to transfer property ownership. It’s different from a title deed, which is a document that proves legal ownership of a property.
A transfer deed is a key part of the transfer of equity process and requires witnessed signatures from all parties to be valid.
Can you do a transfer of equity when there is a mortgage on the property?
Yes, it is possible to arrange a transfer of equity when there is a property on a mortgage.
The first step in this is getting the lender’s approval.
If you’re adding someone to the title, they’ll also be responsible for the mortgage, so the lender will want to check and see if they can afford it. Similarly, if you’re keeping a mortgage and someone else is being taken off, the lender will want to be sure that you can handle the payments on your own.
On the other hand, when someone’s getting removed from the title, they need to settle the associated mortgage debt. There are a few options in this situation, they could:
Pay off the mortgage completely;
Get the lender’s approval to transfer their share as part of a buyout;
Refinance with a new lender and clear the existing mortgage, using the extra cash to buy out the remaining shares in the property.
Yes, if your property has a mortgage, you must inform and get consent from your lender before any transfer of equity, no matter the circumstances.
Your lender may carry out checks on all parties involved in an equity transfer and, in some cases, provide a list of conditions to be met before giving consent.
Can you transfer equity to someone under 18?
Yes, you can transfer equity to someone who is under 18. However, because those below the age of 18 can't legally own property, you would need to establish a trust deed.
A trust deed is a legal document that appoints a trustee to temporarily hold the property until the recipient of the transfer reaches 18 and can legally take ownership of the equity.
What are the tax implications of equity transfer?
Transferring equity can have different tax implications.
Capital gains tax
Even if a person doesn't get anything in return for an equity transfer, they might still have to pay CGT. Whether it applies depends on who receives the property.
If you are giving away the property, or a share of it, to a spouse, civil partner, or charity, you wouldn't have to pay any CGT.
If you transfer equity to a child, sibling, or anyone other than your spouse or civil partner, you may need to pay CGT.
The amount you may be liable for is calculated based on the increase in a property's value since you acquired it. However, full relief (also known as Principal Private Residence Relief) may apply if you've used the property as your main residence for the entire ownership period. This means you won't have to pay any CGT. However, if you die within 7 years of the transfer, it may be subject to Inheritance Tax.
How much Capital Gains Tax might I have to pay?
If you have to pay CGT on a transfer of equity, the annual allowance is currently £12,300. This means you can have a tax-free capital gain up to this limit, considering allowable costs like stamp duty. If your gain exceeds this allowance, CGT is calculated by taking away the allowance and adding it to your taxable income. The rates are 18% for gains within the basic tax rate and 28% for amounts above it.
Example:
Dan is transferring ownership of a property and, after the process, he's made a capital gain of £15,000.
To work out how much CGT he would have to pay he would first deduct the allowance from his gain: £15,000 - £12, 300 = £2,700. So, £2,700 is the amount that could be subject to CGT.
If Dan is a basic rate taxpayer, he'd pay 18% on that £2,700. That's roughly £486.
If he's in the higher tax bracket, he'd pay 28%, which would be around £756 (28% of £2,700).
However, if Dan's allowable costs, like Stamp Duty, amount to £500, he can subtract that from the gain before crunching the numbers. So now, his taxable gain would be £2,200.
If Dan is a basic rate taxpayer, that would be around £396 (18% of £2,200). For the higher tax bracket, it would be about £616 (28% of £2,200).
Stamp Duty Land Tax
When transferring property, Stamp Duty Land Tax (SDLT) may apply depending on factors like the type of transfer and your relationship status.
If you’re giving or receiving land or property and providing something of value in return, SDLT might be necessary. However, in cases of divorce or civil partnership dissolution, Stamp Duty usually doesn’t apply.
If unmarried couples separate and one buys the other out, SDLT could be payable in amounts above £125,000. Gifts, inheritances, and certain transfers may be exempt from SDLT.
As can be seen from the above, the rules on transfer of equity and Stamp Duty can be complicated. In some cases where the rules aren’t straightforward, it may be best to get advice from a knowledgeable property solicitor to gain clarity about potential taxes.
What is chargeable consideration?
You might have to pay Stamp Duty Land Tax when there's a transfer of land or property, and you give something of value in return. This is called chargeable consideration.
The specific rules for calculating Stamp Duty Land Tax will depend on the details of the transfer of equity. However, in certain situations, like legal separations or court-ordered transfers, a couple may not have to pay this.
Because the specifics can vary due to the situation, it's a good idea to talk to a solicitor about expected costs for your circumstances.
Inheritance Tax
Sometimes, if a person wants to leave a property to a loved one and reduce the inheritance tax they might have to pay on it, they may consider transferring their share of the property to them. In some cases, they can help avoid inheritance as, if you transfer the property as a gift, it might not be considered part of your estate.
However, there is a catch. If you transfer property and die within seven years of that action, it could still be counted as part of your estate valuation for inheritance tax.
Therefore, it's a good idea to speak to a solicitor or financial advisor before taking action in this regard to ensure you know all the options available to you to make an informed decision.
What is the 7-year rule for a transfer of equity?
If you give away a property or a share of it, there's a 7-year rule for inheritance tax. This means, that if you die within 7 years, the gifted property may be subject to inheritance tax, however, this tax does decrease over time.
That being said, if you don't die within 7 years of making a gift, the property or share of the property will not be factored into the value of your estate.
How much does a transfer of equity cost?
The cost of transferring equity can vary. Conveyancing fees, covering legal work, can range anywhere from £100 to £500+ VAT.
There are also additional charges that may apply, like online ID checks, property documents, Stamp Duty, Capital Gains Tax, and registration with the Land Registry. If you need to get permission from a mortgage lender, they may also charge a fee.
Do both parties need a solicitor for a transfer of equity?
If there might be a conflict of interest during a property transfer, different solicitors should represent the person transferring and the one receiving.
If the transfer involves no money, one solicitor from the same firm can work with both parties.
Can you do a transfer of equity without a solicitor?
Handling a transfer of equity on your own is possible, but the process can be complex, especially in situations like divorce, and you'll likely need a solicitor for part of the process.
A transfer of equity involves various things like stamp duty, other taxes, and proper registration with the Land Registry. Therefore, hiring an experienced property solicitor to handle a transfer of equity is a smart choice for peace of mind, considering the reasonable costs involved in the transfer.
At Lawhive, our network of solicitors can efficiently handle a transfer of equity for you at a fixed fee. To find out more, get a free case assessment from our team.
How long does a transfer of equity take?
A basic transfer of equity usually takes about 4-6 weeks, but this can vary. For example, if there's a mortgage, it might take longer due to waiting for their consent. Legal disputes, like a divorce, can also cause delays until all issues are resolved.
How can Lawhive help?
If you have questions or need help with a transfer of equity, Lawhive is here to help.
Our expert network of property solicitors can guide you through the equity transfer process and ensure a smooth, efficient transfer whether your case requires permission from a mortgage lender or you'd like to explore further options like setting up a trust.
For tailored advice, guidance, and a fixed-fee quote, contact our legal assessment team today.