Transfer of Equity

Equity is the difference between any outstanding mortgage and value of the property. A transfer of equity is when one or more joint owners of property or land transfers or sells their interest to another owner or owners of that property.

Common examples of transfers of equity

When marriages dissolve or when cohabitees separate. The parties should reach agreement on the amount of money which is to change hands (if any) and ensure that the outgoing owner is released from the mortgage committments. If one person is being removed from the title to the property, the same solicitor cannot act for both parties due to a conflict of interest and we will only be acting for the new owner(s.)
Adding a new spouse's name following a marriage. This can be a gift without any money changing hands. If the new owner is not paying the full market value for the share in the property (less than what it would be worth if sold in the open market) then the transfer is deemed to be a gift or transfer at undervalue.
On the advice of an accountant to transfer a share of the property into a family member's name.
Transfer of property to a family member which they would otherwise receive on the owner's death. The original owner has the satisfaction of seeing that the legal work relating to the transfer is all carried out satisfactorily whilst still alive, but there is one tax trap for the unwary and the exercise should not be undertaken without specialist advice.
When the owner has an adverse credit rating and it will assist a remortgage which would otherwise not complete if the property was not transferred to that owner and an additional owner who has a good credit rating.

This course may be preferred by the joining party to being a surety or guarantor on the property so that he or she has an interest in the property.

If the existing mortgage is to continue then the existing lender's consent to the proposed change is necessary. The existing lender will investigate the circumstances of the proposed transaction and also the financial situation of the continuing owner in order to satisfy itself that the continuing owner can meet the mortgage payments. The lender will write to the instructed conveyancers with conditions of acceptance which it requires to be met. The consenting and continuing lender may wish to join in the transfer of equity as a party and also execute the document. This requirement varies from lender to lender.

The continuing owner may wish to use this opportunity to change lenders perhaps raising cash on more favourable interest rates; if there is a penalty period on the existing mortgage it is advisable to wait until this period has expired. We can help you with this. It will be necessary for the remortgage to be completed at the same time as the transfer of equity.

Liability/pitfalls

If there is a transfer at undervalue then a lender may insist on the new owner(s) entering into a declaration of solvency which we can draw up. The lender may also insist upon a one off insurance premium being paid by the continuing owner and we can arrange this without receiving any commission on the insurance policy. This is because a trustee in bankruptcy can set aside a transaction at undervalue for up to five years. The insurance policy will protect the lender for any claims if the transfer of equity was set aside for any reason.
You may wish to transfer a property to children who are under the age of eighteen years. Legally such persons cannot hold the property in their own name but we can arrange a trust deed to be completed whereby a responsible and trustworthy adult can hold the property until the child becomes of age. The original property owner setting up the trust decides on the suitable age for the trust to end and the child to own the property once an adult such as at 18, 21 or 25 years.
Each time a transfer is completed a stamp duty land tax form is required to be filled in, signed for or on behalf of the new owner. There is a minimum penalty of £100 for any forms not successfully submitted within 30 days of completion.

We will advise you as to the amount of stamp duty land tax payable or whether the transaction is exempt from stamp duty.

Common examples of when transfers of equity are exempt from stamp duty

A transfer of freehold or leasehold land where there is no money or moneys worth paid (often referred to as "consideration") from the original owner to the new owner such as a gift of a property from a parent to a child.
As part of a Court order following divorce.
A transfer in connection with a divorce or the dissolution of a civil partnership.