The Transfer of Equity Process Explained
What is a transfer of 'equity'?
A 'transfer of equity' is a legal process where an existing owner of a property (or land) adds or removes one or more other people to the ownership (title) of the property.
The following transfer of equity advice explains how the transfer of equity process works.
What is equity?
For a home owner, ‘equity’ is the value of a property minus the amount of the mortgage outstanding.
If you own property worth £500,000 and the outstanding mortgage (the amount required to pay the mortgage off) is £400,000, then you have £100,000 equity in the property.
If you and a partner each own a 50% share in the above property, you would each have £50,000 equity (£100,000/2).
Common reasons to transfer equity
Examples of when you might transfer equity include:
- Selling your share in a property
- Separating from a partner or spouse
- Buying out an ex-partner
- Buying out a joint owner
- Adding a new partner or spouse to the title of your property
- Gifting a property (or share in a property) to a child or family member
- Inheritance Tax (IHT) planning.
How is property ownership divided when transferring equity?
If you want to add someone to the deeds (title) of your home, you will need to decide on the type of legal 'joint ownership'.
In England and Wales, up to 4 people can co-own a property as either 'joint tenants' or 'tenants in common'.
Joint tenants each have an equal 50% share in the property.
If one joint tenant dies, ownership of the property passes to the other joint tenant under the 'Right of Survivorship' by default. As a joint tenant, you can't pass on your half of the property to anyone else but your partner when you die.
When the surviving partner dies, the property can be left to whoever they choose.
Tenants in common
Tenants in common can each own 50% of a property. Unlike joint tenants, however, tenants in common can also own different proportions of equity, e.g. 75% - 25%.
Tenants in common might decide to apportion different shares in the property if, for example, one party has made a bigger financial contribution to the purchase of the property.
If one tenant in common dies, ownership of their share is passed on according to the terms of their will, rather than defaulting to the other tenant in common.
When transferring equity, your conveyancing solicitor will advise you on the most suitable joint tenancy options for your individual circumstances.
How does a transfer of equity work?
The following steps will be completed when transferring equity:
|Apply for remortgage or new mortgage||If you intend to remortgage or apply for a new mortgage, speak to your lender or financial adviser. Obtaining a Decision in Principle from the lender will confirm that your existing or new lender is happy with the proposed change in ownership.|
|Instruct a conveyancing solicitor||Your solicitor will work closely with you and all other parties to complete the legal work for the transfer of equity.|
|Verify ID||Solicitors are required to verify the identification (ID) of clients before they can act for them. Your solicitor will also confirm the ID of any other parties being added or removed from the title.|
|Confirm source of funds||If anything is being paid for the equity, the solicitor will need to confirm the source of funds as part of the standard money laundering checks.|
|Review the Title Deeds||The solicitor will obtain and review the property's title documents from HM Land Registry (HMLR).|
|Prepare transfer deed documents||The solicitor will complete the necessary legal documents for the transfer|
|Sign the transfer deed and mortgage deed||The transfer documents are signed and witnessed|
|Transfer funds||The solicitor will arrange for the correct apportionment of any funds and for those funds to be transferred to the relevant parties.|
|Register the deed transfer||The new owner/s are registered at HM Land Registry (HMLR)|
|Complete the Stamp Duty return||If payable, your solicitor will complete the Stamp Duty Land Tax return and file it with HMRC|
Do I need a solicitor or can I do it myself?
If there will be a mortgage in place on the date of transfer of equity, the mortgage lender will require a solicitor to carry out the process. In most other circumstances, it is not technically necessary to seek legal representation.
Even if no money is changing hands, however, transferring property can be a complex process.
Whatever the circumstances of the transfer, there may also be Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT) and Inheritance Tax (IHT) implications.
Instructing a conveyancing solicitor to carry out the conveyancing process ensures that you are legally protected and ensures that the legal transfer is completed correctly. Transfer of equity conveyancing is inexpensive and prevents costly potential errors.
Do both parties need a solicitor?
In some cases, both parties will need independent legal representation for a transfer of equity.
Can both parties use the same solicitor?
If you are adding someone to the title of your property, both parties can instruct the same solicitor. If anything is being paid for the equity, however, you may decide to instruct separate solicitors.
If someone is being removed from the title, it is recommended that each party seeks separate legal representation.
Quittance Legal Services is a panel of solicitors and as such, we can allocate separate solicitors if required.
What if there is a mortgage on the property?
If there is an existing mortgage in place and you intend to pay it off before the equity is transferred, there is no need to tell your mortgage lender.
If you intend to remortgage or keep your existing mortgage after the transfer of equity, you will need to obtain your mortgage lender's consent.
The lender will need to be satisfied that either you (as a sole owner), or you and the new joint owner, will be able to pay the mortgage.
Obtaining a 'Decision in Principle' from the lender will confirm that your existing or new lender is happy with the proposed change in ownership.
If you are relinquishing equity and there is a mortgage in place, you will need to be released from the terms and conditions of the mortgage.
Can the mortgage lender prevent the transfer of equity?
Yes. Your lender may not approve the transfer for any number of reasons. For instance, the new joint owner might not meet the lender's lending criteria.
If your existing lender will not consent to the transfer, you will either have to remortgage or pay off the mortgage.
Can I borrow more money when transferring equity?
Yes. It is quite common to remortgage a property at the same time as transferring equity.
If there is an existing mortgage, the lender will need to accept the new ownership structure. If you also wish to release equity, this would typically be achieved with a remortgage from the existing or new lender.
Conveyancing solicitors are used to carrying out transfers of equity and remortgages at the same time.
What if there is no mortgage on the property?
If there is no mortgage, the transfer of equity process is less complicated. It is possible to complete the process without the help of a conveyancing solicitor.
What if the property is leasehold?
When equity in a leasehold property is being transferred, the following additional steps will need to be completed:
|Obtain a copy of the lease||The conveyancing solicitor will obtain and review a copy of your lease|
|Contact the freeholder/landlord||The solicitor will write to your freeholder to confirm whether a notice fee is payable to register the change of owner.|
|Obtain consent from the freeholder/landlord||This may be required to register a change of ownership at the HMLR|
|Notify the freeholder/landlord||
The freeholder will be notified of the change of ownership. The freeholder may charge an administration fee.
Can the freeholder or landlord prevent a transfer of equity?
No. Your freeholder or landlord cannot prevent you from transferring equity.
However, the freeholder may need to grant formal consent for the transfer and will most likely charge a fee for this.
Freeholders can take a while to respond. If you are planning to transfer equity and are yet to instruct a solicitor, it would make sense to contact the freeholder or managing agent as soon as possible.
Alternatively, speak to your solicitor who will prioritise contacting the freeholder at the start of the process.
What if I want to transfer equity in an unregistered property or land?
A property or plot of land is referred to as 'unregistered' when it is not officially recorded at HM Land Registry (HMLR).
When you sell or transfer equity in a property or plot of land, you will need to be able to demonstrate that you are the official owner of that property. To do this, your solicitor will collate various documents to establish the root of the title - a process called 'deducing title'.
Once the title ownership has been established, your solicitor can complete the transfer of equity.
How long does a transfer of equity take?
The transfer of equity process usually takes 3-6 weeks to complete.
Transfer of equity timescales will vary, depending on your circumstances.
If there's no mortgage lender involved, you could speed up the process by arranging for both parties to sign the transfer papers at the same time.
If there is an existing mortgage in place, it will typically take longer as you will need to wait until you have written consent from your lender. The lender will also need to investigate the eligibility of the new owner/s.
If you are remortgaging, however, you won't need consent from your existing lender but the remortgage will need to be carried out at the same time as the transfer.
If the property is leasehold, your conveyancing solicitor will need to obtain the appropriate consents from your landlord or freeholder. This could slow the process down, so it makes sense to contact your freeholder as early on in the process as possible.
Do I have to pay Stamp Duty Land Tax (SDLT)?
When transferring equity you may have to pay Stamp Duty Land Tax (SDLT).
When transferring equity held in property or land, SDLT is payable on the 'chargeable consideration'.
When purchasing a property outright, chargeable consideration is the purchase price of the property.
When transferring equity, however, chargeable consideration is calculated as follows:
The amount of debt transferred or taken on (the mortgage) plus the amount being paid for the equity.
However, there are special circumstances where SDLT may be considered differently:
As with all tax matters, SDLT can be complicated. You should speak to a conveyancing solicitor to confirm your position with respect to SDLT. To speak to a solicitor, without obligation, call 0800 612 0377.
How is my equity valued when transferring equity?
An individual party's equity in a property would be valued as follows:
(Current market value - outstanding mortgage) x % share in the property
How is the valuation carried out on a transfer of equity?
In some circumstances, you will need to get the current market value of the property valued as part of the transfer process. If you are separating from a partner, for example, you would probably need to obtain a valuation. If you need to pay Capital Gains Tax (CGT you will also need to professionally assess the property's value. You would normally obtain an independent property valuation through a chartered surveyor.
Quittance's panel of solicitors can advise you if you will need a valuation and will be able to recommend a RICS valuer where necessary.
What happens when the transfer of equity is complete?
The transfer of equity is effectively complete once the 'Deed of Transfer' document has been signed by all parties.
Your conveyancing solicitor will complete the transaction by submitting a SDLT return (if applicable) to HMRC. The solicitor then formally register all new interests and charges over the property with HM Land Registry (HMLR).
How we can help you
Whether you are gifting a property to a child, getting married or separating, or transferring equity for any other reason, our solicitor panel can help make the process as straightforward and stress-free as possible.
If you are also planning to remortgage as part of the transfer process, the remortgage legal work can be completed at the same time as your transfer of equity.
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Chris Salmon, Director
About the author
Chris Salmon is a co-founder and Director of Quittance Legal Services. Chris has played key roles in the shaping and scaling of a number of legal services brands and is a regular commentator in the legal press.