What is a Transfer of Equity?
A transfer of equity is essentially an amendment in property co-ownership. It most commonly occurs when a couple divorces and one owner wants to buy the other out, if a person remarries and wants to give equity to their new partner, or when trying to improve tax efficiency.
You can transfer all, or part of the equity, and you may choose what percentage goes to whom (including children). Depending on your personal circumstances, equity transfer can be a complicated business, so we highly recommend you employ the services of our Transfer Of Equity Solicitors to ensure a smooth and stress-free process.
What is equity?
Equity is the percentage of full ownership one or more people have of a property.
For example, if a married couple own a house that is worth £300,000 and have a £150,000 mortgage, there is £150,000 worth of equity. This is the value of the property that the couple jointly owns outright. As more mortgage payments are made, this equity increases, however it will also likely fluctuate further based on the overall value of the property.
What are the costs of transferring equity?
The cost of transferring equity mostly depends on the complexity of your personal circumstances and the value of the property and/or mortgage. You will need to consider that there may be costs for the following when transferring equity:
- Your chosen conveyancer
- Administrative costs from your mortgage lender
- Stamp Duty Land Tax (SDLT)
- Land Registry fee, once the deed transfer has been registered
- Additional search and/or registration charges from the conveyancer
Are there any stamp duty implications for transferring equity?
If you are divorcing, legally separating, annulling a marriage or ending a civil partnership and one party is moving out and leaving the property’s title, there are no stamp duty implications. It’s important to note, however, that if you and your partner are not legally bound to one another (such as cohabitating), there may be a charge.
In addition, there is no charge if you are gifting a share of a property to a family member, or you receive a property or shares of a property in a Will.
If you are looking to add a new stakeholder to the property who will have a share of the equity, an amount of stamp duty will be required. The amount payable will depend on the value of the house and/or the mortgage (stamp duty on equity transfer is only payable over £250,000), and is calculated using these SDLT bands.
It is also worth noting that if a transfer of equity is related to a buy-to-let or second property, there is an additional 3% charge on top of the current rates (if the chargeable consideration is more than £40,000).
What is the basic process for transferring equity?
Below we have highlighted a step-by-step process as to what you can expect when transferring equity.
- Your conveyancer will obtain an official copy of your property’s title deeds from the Land Register.
- A Transfer Deed Document will then be composed for you to review.
- If required, third parties such as mortgage lenders or banks will need to be notified of the changes, and will need to supply written consent.
- You will then be ready to meet with your solicitor to sign the Transfer Deed, in the presence of an independent witness.
- The Deed will then be registered with the Land Registry.
What if there is still a mortgage on the property?
Rest assured, it is still possible to transfer equity if there is an existing mortgage on the property in question, in fact, a large percentage of people do. There’s just a few more aspects to think about.
At a top level, if the request is to remove someone from the title and buy them out, the lender will need to be satisfied that the necessary mortgage payments can still be made by the remaining owner(s). This would be the same if someone was being added to the mortgage – your lender will need to do their own independent checks to ensure that the payments can be met and maintained. Remember, you can discuss your options in detail with one of our experienced solicitors
Can I transfer equity to my child?
Yes, if you wish you can transfer the equity of your property to any children you choose. If at the time of processing the transfer deed your child is under the age of 18, you will need to place the equity into a trust.
If they are over 18, everything works in the same way as transferring to another adult. Some people choose to transfer property to children for tax efficiency, however, if doing so, it is worth noting that there are some finer details around inheritance tax that will still need to be considered. You can speak to our solicitors about this should you be interested in finding out more.
It is also important to consider that when your child turns 18, they are in control of your living arrangements, and if they fail to keep up with any outstanding mortgage payments, or are declared bankrupt, this may leave you in a difficult position.
How long does an equity transfer take?
Typically, you can expect a transfer of equity to take around 4-8 weeks. This is where having an experienced conveyancer on board can pay dividends, as they can chase third parties to get paperwork across the line in a timely manner.
What are the pros and cons of an equity transfer?
The pros and cons of transferring equity can be difficult to quantify, as it depends on your personal circumstances and your feelings towards the transfer. If you are considering transferring equity to a child or family member as a gift, this can be an effective way to increase your tax efficiency, however we highly recommend you liaise with a legal representative before taking any action in order to ensure clarity.
How Eric Robinson Solicitors can help with this process
Our conveyancing solicitors are highly trained to discuss your requirements and act on your behalf. We will guide you through the process of transferring equity, ensuring that it is as smooth and stress-free as possible. We are able to advise on all aspects of equity transfer so you are able to make informed decisions that suit you and your family.
If you would like to set up an initial consultation with one of our experienced solicitors, please contact your chosen branch, or fill out our contact form, which can be found at the bottom of this page. We have solicitor offices in: Southampton (Hedge End & Bitterne), Winchester, London (Richmond), Chandlers Ford and Lymington.