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, or 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, and some of these are explored later in the article. However, the most popular reason someone might want a transfer of equity is due to separation, divorce, or leaving a property – this is what most are asking for when they want to know how to take a name off the deeds or mortgage.
How does it work?
A transfer of equity can be incredibly simple, as long as all of the terms and conditions are clear between the people transferring to or from the property. If a couple is divorcing, one person is leaving the home, and the other is buying them out, and there is no mortgage, a transfer of equity is simple.
A form is filled out by the person staying in the property. It is sent on to the person whose name will be removed. Both parties sign, this is filed by a solicitor and sent to the Land Registry. Where this becomes complicated is when a mortgage exists, and the lender does not believe the person remaining in the home can keep the mortgage payments up themselves.
Similarly, it is more to do with the surrounding implications, rather than the paperwork, when it comes to transferring equity to children, siblings or anyone else. These transfers can have an impact on Capital Gains Tax, Stamp Duty Land Tax and depend on different factors if mortgage lenders are involved. If you have a mortgage, you are obligated to inform the lender if the names on the deeds are changing – you cannot change a name on the mortgage without changing the deeds, 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 a lender being involved, the process can be incredibly quick. Organise to sign the Transfer of Equity papers and have them sent on to the other person who is being added or removed. To speed up the process, you could both sign them at the same time, and then it will take a few days to be sent through to the Land Registry and confirmed.
The more complicated a situation is, the longer the process can take. If you are separating from a spouse who does not give consent to the transfer, or there are issues with mortgages and payments, this can prolong the process. If both parties are agreed and can sign the document promptly, it can go through smoothly.
How much does a transfer of equity cost?
The cost of a transfer of equity can vary on the circumstances and the value of the property, as well as whether you were adding, removing or replacing someone on the deeds, and whether the property is leasehold or freehold.
Adding or removing someone from the deeds of a freehold property where the value of the consideration is £50,000-£100,000 could cost between £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, Capital Gains Tax or Stamp Duty. These are dependent on individual circumstances, the use and value of the property and who it is being transferred to. A qualified, experienced 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 – 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 transfer of equity is given 50% of a £400,000 house, but there is a mortgage of £200,000, the portion would be £300,000 which would incur Stamp Duty. This is dependent on particular circumstances.
What about Stamp Duty?
Whether Stamp Duty (SDLT) needs to be paid depends upon 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. Similarly, if the property is a ‘gift’ and there is no mortgage, or the property is split equally between two people, there will be no SDLT to pay.
However, when the property is split unequally, or a mortgage is transferred, if the amount that is being transferred (the consideration) is over the SDLT threshold, there may be some tax to be paid.
These will change dependent on individual situations, so it’s always important to discuss the expected fees and payments with your solicitor when you first decide to transfer equity.
With or without a mortgage - if you do not have a mortgage, you will not have to pay SDLT.
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.
Separating but unmarried – if you are not married or in a civil partnership, and are transferring to one person, 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, in order to transfer, you will need to pay SDLT. 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 payments. If this is confirmed, a transfer instruction is sent to the solicitor, and a transfer deed is signed by both parties. This costs approximately £300 plus VAT, plus Land Registry/searches costs.
How do I carry out a transfer of equity?
A transfer of equity can be carried out by your solicitor. In the simplest cases, this is simply a document that both you and the person you are transferring to or from the deeds sign. It will then be sent to the Land Registry. If situations 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 LBTT (Land and Buildings Transaction Tax).
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 go through very simply and quickly. 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, and a professional solicitor will be able to support you in approaching your equity transfer the right way.