What is a Transfer of Equity?
A transfer of equity is when there is a change to the ownership of a property. However, unlike in a sale or disposal of a property, in a transfer of equity one or more of the current owners will remain on the title.
What is Equity?
Equity is the market value of the property that you own less any debts/mortgages outstanding on it. It is the value of your interest in the property. Simply put it is the money that you will receive, if you were to sell the property.
For example, if your property value is £300,000 and you have a mortgage on the property for £100,000. The equity in the property is the value of the property less any mortgages. Therefore, in our example the equity is £200,000.
Why do a Transfer of Equity?
Usually, a transfer of equity occurs when a person wants to add their spouse or partner or child to the property. Or when a person, following a divorce or separation, is to be removed from the title.
People may transfer their equity in a property to their children as the transfer can be treated as a gift and this can have tax advantages. However, please obtain professional tax advice before embarking on this.
Do I need a solicitor or conveyancer to do a transfer of equity?
It is possible to do a transfer of equity on your own, but it is recommended that you seek the advice from a solicitor or conveyancer to assist with the transfer of equity as there could be complications of which you are unaware. For example, there could be restrictions on the property that needs to be addressed. There could be a mortgage on the property and the lender may insist on a conveyancer or solicitor being appointed.
If you are considering a transfer of equity, please contact our team of experts. We are more than happy to discuss your matter with you without any obligation to use our service.
Do each of the parties to a transfer of equity need a solicitor or conveyancer?
When there is no mortgage involved and you are adding a person to the title one solicitor or conveyancer can act for both parties. When a person is to be removed from the title, they should seek independent legal advice. In our opinion, it is not good (due to conflict-of-interest risks) practice for one law firm to act for all parties. The person coming off the title will be required to provide an ID1 Form which the Land Registry will require to register the transfer.
Example
Where there is a mother and father on the title and the father is coming off the title and the daughter is going onto the title, a conveyancing firm can act for both the mother and the daughter but not the father who is going off the title. Be careful where a conveyancer is willing to act for all three parties, as this may indicate poor internal policies and risk management. As he is losing his rights, he will need to obtain independent legal advice and complete the abovementioned ID1 form. This is the case even if there is a mortgage on the property.
What Conveyancing work is Involved in a Transfer of Equity?
Check Title Deed and Client Identity
As part of the conveyancing, your conveyancer or solicitor will first obtain title deeds from the Land Registry. These are known as official copy of the title and your solicitor or conveyancer will check the title to see if there are any restrictions or mortgages on the property.
You will also be required to provide identity documents for the conveyancer or solicitor to verify who you are. A prudent conveyancer would also request additional documents (known as link documents) to establish you are the true owner of the property and not a fraudster.
Obtain Lender Consent
If there is a lender, then the lender’s consent must be obtained to the transfer.
If Leasehold title
Your conveyancer will contact the freehold owners to obtain costs and process for serving notices and complying with any restrictions.
Prepare the Transfer document
The transfer deed also known as the TR1, states who the new owners will be and any new terms to the ownership.
If the current mortgage is to stay as it is, the lender will need to be added as a party to the transfer deed.
Sign the Transfer Deed
The transfer deed needs to be signed in front of a witness and the witness’s details are included in the transfer deed. The original transfer deed needs to be sent to the conveyancer.
Stamp duty and Register change in ownership with the Land Registry
Your Conveyancer or solicitor will complete the SDLT form and apply to the Land Registry to register the new transfer deed
How long does it take for a Transfer of Equity?
A straightforward transfer can be completed within 2-4 weeks. However, whether a transfer is straightforward or not is something that can only be ascertained once the transaction has commenced.
Where the property has a mortgage, written consent from the lender is required before the transaction can proceed to completion and this can sometimes take 1-2 weeks. Also, if there is a divorce involved, then the court proceedings could add time. Finally, if there are any disagreements between the parties, these can cause delays to completion.
Stamp Duty on Transfer of Equity
In transfer of equity cases the SDLT payable is based on the chargeable consideration given for it (monies exchanging hands) or the mortgage outstanding.
If no monies are being paid for a party to be removed or by a party being added, then there is no stamp duty payable.
The HMRC website has useful information on this with several examples. on how Stamp duty is calculated. This link reproduced here has particularly good examples to help you understand the stamp duty for transfer of equity transactions.
