The Transfer of Equity Process Explained

A 'transfer of equity' occurs when an existing owner of a property either adds or removes one or more people to the title (ownership) of the property. This can happen for several reasons, such as when a couple gets married or separate.

The following guide explains the transfer of equity process.

Transfer of Equity Process

What does 'Equity' mean?

‘Equity’ is the value of a property minus the amount of the mortgage outstanding.

For example;

If a property has a value of £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 have a 50% share in the above property, you would each own £50,000 equity (£100,000/2).

Why might I need to transfer equity?

A transfer of equity may be necessary in the following circumstances:

  • Adding a partner or spouse to the title
  • When separating from a partner or spouse
  • Transferring equity from one partner or spouse to another
  • Gifting ownership or part ownership to a family member or child
  • Transferring equity for tax purposes
  • Taking a name off the mortgage

How are property shares split when transferring equity?

If you are adding your partner to the deeds, you must both decide on the type of 'joint ownership'.

In England and Wales, two parties can be either Joint Tenants of a property or Tenants in Common.

Joint Tenants

Joint tenants each have an equal 50% share in the property. If one person dies, then by default sole ownership goes to the other partner under the 'Right of Survivorship'. As a joint tenant, you can't pass on your half of the property to anyone else but your partner when you die.

Tenants in common

Tenants in common can still each own 50% each or, if desired, can own different percentage shares in the property. Holding different percentage shares in a property is common when one party has made a bigger financial contribution. This is the 'beneficial interest' each person has in the property.

With tenants in common, if one co-owner dies, their share of the property is passed on in line with the terms of their will, rather than defaulting to the other co-owner.

Your conveyancing solicitor will advise you on the right joint tenancy options.

Key steps in the transfer of equity process:

Step Comment
Instruct a solicitor Your solicitor will work closely with you and your lender to complete the transfer
Verify ID Solicitors are required to verify the identification of clients before they can act for them.
Review the Title Deeds The solicitor will obtain and review a copy of the property's title from the Land Registry
Prepare transfer deed documents The solicitor will complete the necessary legal documents for the transfer
Sign the transfer deed The transfer documents are signed and witnessed
Register the deed transfer The new owner/s are registered at HM Land Registry

What if there is a mortgage on the property?

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.

If you are adding someone to the title, that person will become jointly liable for the mortgage.

The solicitor will seek the consent of the lender to carry out the transfer.

Can the mortgage lender block the transfer of equity?

The lender may not approve the transfer for any number of reasons e.g. the new owner does not meet the lender's lending criteria. In these circumstances, the mortgage will need to be paid off before the transfer can occur. This could be by way of a cash payment or remortgage with another lender.

Can I borrow more money when transferring equity?

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 vet the new owner to make sure they are happy with 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. Solicitors are used to carrying out transfers and remortgages in parallel.

What if the property is leasehold?

If the equity being transferred is held in a leasehold property, the following steps will also be carried out:

Step Comment
Obtain a copy of the lease The conveyancing solicitor will also obtain and review a copy of the lease
Contact the freeholder/landlord The solicitor will write to the freeholder to confirm whether a notice fee is payable to register the change of owner
Notify the freeholder/landlord The freeholder will be notified of the change of ownership, and a notice fee (essentially an administration fee) will need to be paid (if applicable)
Obtain consent from the freeholder This may be required to register a change of ownership at the Land Registry

Can the freeholder or landlord block a transfer of equity?

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. 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. COVID-19 has led to severe backlogs and it may take some time to get a response. Alternatively, speak to your solicitor who will prioritise contacting the freeholder at the start of the process.

Do I have to pay stamp duty?

When transferring equity you may have to pay Stamp Duty (SDLT)*:

Circumstances SDLT Payable Comment

No mortgage

No

Stamp Duty is only payable on the mortgaged part of the property. If the property is wholly owned then no stamp duty is payable

Getting married, entering into a civil partnership or moving in together

Yes

SDLT is payable if the equity being transferred is greater than the SDLT threshold

The transfer is a gift

NO

If there is no consideration, SDLT does not usually apply

If one person takes on a larger share

Maybe

If a property is jointly owned and the equity is split equally, no SDLT will be payable. However, if one person takes on a larger share, SDLT maybe payable. If the larger share is given as a gift then there is no consideration and SDLT will not be payable.

Transfer of outstanding mortgage

Maybe

If one person takes over another person’s ownership of a property, the property is mortgaged, and the consideration is above the threshold, SDLT will be payable.

Divorcing/dissolving civil partnership

No

No SDLT payable. Also applies if the marriage is annulled or a legal separation is entered into.

You are left the property in a will

No

No SDLT is payable, even if you take on the mortgage on the property from the date te person died.

Sce: https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

*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 7456.

See also: Do I Pay Stamp Duty Land Tax (SDLT) on a Transfer of Equity?

How is a property 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 valuer where necessary.

How long does a transfer of equity take?

A straightforward transfer of equity can be completed in 2-4 weeks. If there s no lender involved, you could speed up the process by arranging for both parties to sign the transfer papers at the same time.

If the transfer is contentious, for example in a divorce where one spouse does not consent, the transfer will take longer.

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. Lenders are currently backlogged due to COVID-19 so the transfer of equity process may take 6 to 8 weeks if you are remortgaging.

Can I do my own DIY transfer of equity?

It is possible to carry out the transfer of the equity process yourself. However, the process can be complex, especially where children are involved or there is the potential for disagreement when a couple is separating or divorcing.

DIY'ers attempting the transfer of equity process often come unstuck when it comes to stamp duty and other tax considerations or when ensuring the property is correctly registered at HM Land Registry.

If the property has an existing mortgage or if there will be a remortgage carried out, the lender will require a solicitor to carry out the process.

Transferring equity through a solicitor is a relatively inexpensive process and gives the peace of mind that the process will be completed correctly.

See also: Do both parties need a solicitor when transferring equity?

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 an SDLT return (if applicable) to HMRC. The solicitor then formally register all new interests and charges over the property with HM Land Registry.

How can Quittance help?

Whether you are gifting a property to a child, getting married or separating, or transferring equity for any other reason, our panel of conveyancing solicitors can take care of the legal work for you. Even if you are just looking for advice, we can help.

If you are also planning to remortgage as part of the transfer process, we can complete the remortgage legal work at the same time as your transfer of equity.

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Helen Goddard, Legal researcher

Author:
Helen Goddard, Legal researcher