What is a transfer of equity?
A transfer of equity is the addition or removal of a person to the deeds of the property. This could be creating a co-owner, taking a name off the lease, or transferring it all together. This could also be called property transfer.
When might you want to use a transfer of equity?
There are many situations in which you might transfer equity.
- If you are separating from a partner or spouse and one of you wants to stay in the home
- If you have just married and want to co-own the property
- If you want to give ownership/part-ownership of the property to a child or family member
There are many specific situations in which someone may want to organise a transfer of equity. The most popular reason someone may transfer equity is because of separation, divorce, or leaving a property.
How does it work?
A transfer of ownership can be easy if everyone involved understands the terms and conditions. If a couple is divorcing and the one of them is buying the other out, if there's no mortgage, a transfer of equity is simple.
A form is filled out by the person staying in the property, which is then sent on to the person whose name will be removed. Both parties will sign the form. An official copy of the title deeds is then filed by a solicitor and sent to the Land Registry.
Where this becomes complicated is when there is an existing mortgage. If the lender does not believe the person remaining in the home can keep up with mortgage repayments, issues can arise.
Transferring equity is less to do with the paperwork than it is to do with the other surrounding implications. These transfers can have an impact on Capital Gains Tax and Stamp Duty Land Tax. If mortgage lenders are also needed, other factors will be involved.
If there is a mortgage, you must tell the lender if the names on the deed are changing. You cannot change any names on the mortgage without changing the deed, and vice versa.
How long does it take?
The main length of time usually comes with a mortgage lender assessing eligibility. If you are transferring equity without involving a lender, the process can be incredibly quick.
Firstly, you'll need to sign the Transfer of Equity papers. After this, you will need to send them to the person being added or removed from the deed.
To speed up the process, you could both sign them at the same time. It will then take a few days to be sent through to the Land Registry and be confirmed.
The more complicated a situation is, the longer the process can take. Problems can occur if your spouse doesn't agree to the transfer or if there are issues with mortgage repayments. If both parties are in agreement and can sign the document promptly, it can go through smoothly.
How much does a transfer of equity cost?
There are a few factors that can contribute to the cost of a transfer of equity. These can include:
- The circumstances leading to the transfer
- The value of the property
- Whether you're adding, removing or replacing names on the deed
- Whether the property is a freehold property or a leasehold property
To add or remove someone from the deeds of a freehold valued at £50,000-£100,000, it could cost £195-£580. As the value of the equity changing hands increases, so will the cost of the service. Other factors, like the number of mortgages on a property, can also make a difference. You may also have to pay a transfer fee to your bank if the property has a mortgage.
Be aware that transferring equity can incur other costs – for example, rates of Stamp Duty or Capital Gains Tax. These are dependent on individual circumstances, the use and value of the property, and who it is being transferred to. A qualified, experienced conveyancing solicitor will be able to tell you what you are liable to pay on any extra charges.
What is consideration?
Consideration is the amount of the property that you will take over from the previous owner. It's important to note that whether you pay Stamp Duty will be dependent on the size of the consideration.
Consideration includes both equity (the value of the property) and the value of the mortgage. So, if a person is transferred 50% of equity worth £400,000, but there is an outstanding mortgage of £200,000, the portion would be £300,000. This would incur Stamp Duty. This is dependent on particular circumstances.
What about Stamp Duty?
The payment of Stamp Duty (SDLT) depends on the 'consideration' and the nature of the transfer. Couples dissolving a marriage, legally separating or transferring equity by court order will not need to pay SDLT. If the property is given as a gift with no mortgage, no SDLT needs to be paid. Additionally, SDLT doesn't needs to be paid if the property is split equally between two people.
However, Stamp Duty Land Tax may need to be paid in other circumstances. These include whether the property is split unequally, if a mortgage is being transferred, or if the consideration is over the SDLT threshold.
These will change dependent on individual situations. It’s always important to discuss the expected fees and payments with your solicitor when you first decide to transfer equity.
Specific situations where you may or may not have to pay STLD:
- Divorce: If you are divorcing, you are unlikely to pay SDLT. If you are transferring the mortgage to one person instead of two, the mortgage lender will have to agree.
- With or without a mortgage: if you do not have a mortgage, you will not have to pay SDLT.
- Separating but unmarried: If you are transferring to a person but you're unmarried and not in a civil partnership, you may have to pay SDLT.
- From parents to children: If you have inherited a property in a will, even if it has a mortgage, you will not pay SDLT. If you are gifted a property and there is a mortgage on it, even if the mortgage payments do not transfer to you, you will have to pay SDLT on the portion of the mortgage that you now own.
- To spouse: If you are buying a portion of the equity and the mortgage, you will need to pay SDLT in order to transfer. Even if no money changes hands, if you now pay the mortgage along with your spouse, the ‘consideration’ will be half of the outstanding mortgage. If this is over the SDLT threshold, you will be expected to pay.
- Taking a name off: If there is a mortgage, the lender has to be happy that the remaining named owner can keep up with repayments. If this is confirmed, a transfer instruction is sent to the solicitor. A transfer deed is then signed by both parties. This costs approximately £300 plus VAT, plus Land Registry fees/searches costs.
How do I carry out a transfer of equity?
A transfer of equity can be carried out by your solicitor. In simple cases, this is just a document signed by both you and the person you are transferring to or from. It is then sent to the Land Registry. If the circumstances surrounding the transfer of equity are more complex, it is always best to talk to your solicitor to see what they would recommend.
Transfer of equity in Scotland
As with most things to do with property, transfer of equity is slightly different in Scotland, though along the same lines. A ‘consideration’ becomes a ‘chargeable consideration’ and Stamp Duty is replaced by Land and Buildings Transaction Tax (LBTT).
There may also be Additional Dwelling Supplement (ADS) to pay if the property is not your primary residence. It is worth discussing this with your property solicitor to confirm which charges you are required to pay.
A transfer of equity doesn’t have to be complicated or expensive
Whilst transfers of equity can feel stressful, especially in the wake of a separation or divorce, they can often run quickly and smoothly. Being aware of any expectations from a mortgage provider, as well as the impact a transfer may have on Stamp Duty or other charges is important. A professional solicitor will be able to support you in approaching your equity transfer the right way.