What is a transfer of equity?
A transfer of equity is the addition or removal of a person from the deeds of a property. This could mean creating a co-owner, removing a name from the title, or transferring ownership altogether. It may also be referred to as a property transfer.
When might you want to use a transfer of equity?
Situations leading to a transfer of equity can vary greatly. You may want to use a transfer of 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 choose to transfer part-ownership of the property to a child or family member
There are many specific situations in which someone may want to arrange a transfer of equity.
The most common reason is separation, divorce, or one person leaving a property.
How does transfer of equity work?
A transfer of ownership can be straightforward if everyone involved understands the terms and conditions. If someone in a divorcing couple is buying the other out without a mortgage, a transfer of equity is relatively simple.
A form is completed by the person staying in the property. This is then sent to the person whose name will be removed. Both parties sign the form. An official copy of the title deeds is then filed by a solicitor and sent to the Land Registry.
Where things become more 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 often less about the paperwork and more about the wider financial implications. These transfers can affect Capital Gains Tax and Stamp Duty Land Tax. If mortgage lenders are involved, other factors will also need to be considered.
If there is a mortgage, you must tell the lender if the names on the deed are changing. You cannot change names on the mortgage without changing the deed, and vice versa.
How long does transfer of equity take?
The main delay usually comes from a mortgage lender assessing eligibility. If you are transferring equity without involving a lender, the process can be very quick.
First, you will need to sign the transfer of equity papers. After this, you will need to send them to the person being added to 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 to the Land Registry and confirmed.
The more complicated the situation, the longer the process can take. Problems can occur if your spouse does not agree to the transfer or if there are issues with mortgage repayments. If both parties agree and can sign the documents promptly, the process can move 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 are adding, removing, or replacing names on the deed
- Whether the property is freehold or leasehold
To add or remove someone from the deeds of a freehold property valued at £50,000 to £100,000, it could cost between £195 and £580.
As the value of the equity changing hands increases, so will the cost of the service. Other factors, such as 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, such as Stamp Duty or Capital Gains Tax. These depend 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 extra charges you may be liable to pay.
What is consideration?
Consideration is the amount of the property that you will take over from the previous owner. It is important to note that whether you pay Stamp Duty depends on the size of the consideration.
Consideration includes both equity and the value of the mortgage. So, if a person is transferred 50% of equity worth £400,000, and there is an outstanding mortgage of £200,000, the total consideration would be £300,000. This could incur Stamp Duty, depending on the circumstances.
What about Stamp Duty?
The payment of Stamp Duty Land Tax 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 does not need to be paid if the property is split equally between two people.
When will I have to pay Stamp Duty?
Stamp Duty Land Tax may need to be paid in other circumstances. These include whether the property is split unequally, whether a mortgage is being transferred, or whether the consideration is over the SDLT threshold.
These will vary depending on the individual situation. It is always important to discuss the expected fees and payments with your solicitor when you first decide to transfer equity.
- 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 and you are 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 may have to pay SDLT on the portion of the mortgage that you now own.
- To a spouse: If you are buying a portion of the equity and the mortgage, you may need to pay SDLT. If you begin paying the mortgage along with your spouse, the consideration will be half of the outstanding mortgage, even if no money changes hands. If this is over the SDLT threshold, you may be expected to pay.
- Taking a name off: If there is a mortgage, the lender must be satisfied that the remaining 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 HM Land Registry and search fees.
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 transfer of equity is more complicated, it is a good idea to consult your solicitor for advice on the best course of action.
Do both parties need a solicitor for a transfer of equity?
A solicitor is required for the person receiving a deed in a transfer of equity. If, however, you are the deed holder transferring the equity, you do not necessarily need one.
In many equity transfer cases, both parties involve a solicitor because of the amount of paperwork and legal support required.
Transfer of equity in Scotland
As with most things relating to property, transfer of equity is slightly different in Scotland, although the process is broadly similar. Consideration becomes chargeable consideration, and Stamp Duty is replaced by Land and Buildings Transaction Tax.
There may also be Additional Dwelling Supplement to pay if the property is not your main 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 need to be complicated or expensive
Transfers of ownership can be stressful, especially after a breakup, but they can often be completed quickly and easily. 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 handling your equity transfer properly.
Transfer of equity FAQs
Can I do a transfer of equity myself?
Although you can carry out a transfer of equity yourself, it is strongly recommended that you use a solicitor, as the process can be complex and may require professional legal knowledge.
Is Stamp Duty payable on transfer of equity?
In some circumstances, you will need to pay Stamp Duty on a transfer of equity, for example if the consideration is over the threshold. You can check with your solicitor if you are unsure whether Stamp Duty will apply.
Do you pay Capital Gains Tax on transfer of equity?
In some circumstances, depending on who you are transferring the equity to, you may have to pay Capital Gains Tax on a transfer of equity. You may also need to pay if the property is not your main home.