Transfer of equity explained: Process, costs and legal considerations

A transfer of equity is a common legal process used to change the ownership of a property. This might involve adding a partner to the title deeds, removing a former partner following a separation, or restructuring ownership for tax or financial reasons. While the process may appear straightforward, it can involve important legal, financial and tax considerations. Understanding how a transfer of equity works, when it is needed, and the steps involved can help ensure the transaction is completed correctly and efficiently.

What is a transfer of equity?

A transfer of equity is when there is a change in the legal ownership of a property by either adding or removing a person from the deeds.

‘Equity’ means the amount, or value, of your interest in a property after any outstanding mortgage or other debts have been discharged.

When would you need a transfer of equity?

There are several occasions when you may need to change ownership of a property;

1. Following the breakdown of a relationship to remove an ex-partner from a registered title
2. To add a spouse or new partner to a title where property is originally registered in a sole name
3. To meet the requirements of a lender if the property is being re-mortgaged
4. To add other people to the deeds who have or intend to have an interest in the property
5. For tax planning purposes, considering for example potential capital gains tax or inheritance tax liabilities.

What are the key steps for a transfer of equity?

When it has been decided that a transfer of equity is required, there are a number of key stages in the process:

1. Solicitor will prepare a ‘TR1’- this is the Land Registry form of deed which will legally transfer the property into the chosen names
2. The transfer will be forwarded to any solicitor acting for the other party to approve
3. The title for the property will be checked to see if there is any mortgage on the property. If the mortgage is to remain, consent from the lender will be required to the transfer
4. Once the transfer has been approved, it will be sent out for signature
5. Once the signed transfer has been received, parties will agree a time to complete the transfer. This is when any monies will change hands and the deed is dated
6. The transfer is lodged at the Land Registry to be registered.

The stages involved in a transfer of equity will be specific to the transaction however, and as such, it is important to discuss this with your solicitor.

Do you pay stamp duty on a transfer of equity?

Stamp Duty Land Tax (SDLT) is a tax charged upon the transfer of land and is calculated on the consideration, or price, which is paid for that land.

When a transfer of equity takes place where there is a current mortgage, ‘consideration’ will include a share of the outstanding mortgage debt secured on the property being transferred. This means that Stamp Duty may still be payable even if nothing is being paid for the share in the property being transferred.

Stamp Duty is calculated at the same rates as it would be for a residential purchase and will be payable when the ‘consideration’ exceeds £125,000.00. Alternative rates exist where the person acquiring a share in the property already owns another property.

For example, if you transfer 50% of your property to another party which still has a mortgage of £400,000.00 outstanding, stamp duty will be payable upon 50% of that outstanding mortgage, being £200,000.00.

Where Stamp Duty is payable, this may be paid within 14 days of the transfer being completed.

The guidance provided surrounding this can be quite confusing. At Tees, our residential property team will be able to advise you on how much will be payable based on your transaction, or, alternatively, refer you to a stamp duty specialist for comprehensive advice if necessary.

When is stamp duty not payable on a transfer of equity?

When undertaking a transfer of equity, there are certain circumstances where Stamp Duty will not be payable:

• If the property is a part of matrimonial proceedings and is directed by a court order
• If the property has been inherited under a will
• If the property is a ‘gift’ (meaning no money will be changing hands) and there is no outstanding mortgage on the property.

Can I transfer a share in my property to more than one person?

It is possible to have up to four people registered as owners of a property at one time. Each person must be over the age of 18.

It is also possible for each party to own a different share in the property.

Joint tenants vs tenants in common: what is the difference?

There are two ways in which ownership at the land registry can be recorded:

Joint tenants

As ‘joint tenants’, you are each considered to own the property as a whole. With joint tenancy, there is a ‘right of survivorship’. This means that if one joint owner dies, their share would automatically pass to the remaining joint owner or owners.

Tenants in common

As tenants in common, you are each considered to hold separate shares in the property. There is no right of survivorship, and therefore any shares held by any owner who were to die would pass in accordance with that person’s will or under intestacy rules if there was no will. If there is no evidence to the contrary, it will be assumed that each party has an equal share in the property. If you wish to specify a different share, you can do so in a separate Declaration of Trust.

What information is needed for a transfer of equity?

To progress a transfer of equity, the following information will need to be provided:

• The full name of the party acquiring any share in the property
• Is any money being paid for the share in the property being acquired?
• Is there an outstanding mortgage on the property? If so, how much is outstanding
• The reason for undertaking the transfer of equity, for example, is the transfer under a court order?
• Is the property Freehold or Leasehold?

Legal and tax considerations when transferring equity

Before proceeding with a transfer of equity, there are several additional factors to consider:

1. It’s important that you have an up-to-date will in place, especially if you wish to be registered as tenants in common
2. You may like to consider having set shares in the property formally recorded by way of a Declaration of Trust
3. You may require advice from a family law specialist if the transfer of equity follows the breakdown of a relationship
4. If you are disposing of property, it is important to ascertain whether capital gains tax may be payable
5. If you were to pass away, it is important to consider whether inheritance tax will be payable because of the transfer
6. Is the person obtaining a share in the property over the age of 18? If not, they will not be able to be registered as an owner of the property
7. If there is an existing outstanding mortgage on the property, it will be necessary to obtain the consent of your lender to the transfer, and your lender may wish to be a party to the transfer
8. If the property is leasehold, there will be additional requirements that must be satisfied with your landlord, and consent under your lease may be required from the landlord prior to undertaking the transfer. Your solicitors will be able to advise on this upon sight of your lease and speaking with your landlord.
9. At Tees we work collaboratively with colleagues across all disciplines to ensure that we can provide a service that will consider and meet all of your individual needs and circumstances.. If you require advice on the transfer of equity or have any other conveyancing matters, do not hesitate to contact our expert team.