When it comes to property ownership, things change. And when they do this needs to be reflected in the title deeds. A property sale facilitates the transfer to completely new owners. Whereas a transfer of equity allows at least one original owner to remain on the deeds. This is a very useful legal process. From changes in relationships, family planning or relocations. Transferring of equity allows flexibility to shape ownership as life ebbs and flows.
If you are considering changing the ownership structure of a property – read on. This Lawtee breaks it down into five easy steps. By the time you finish your coffee you will be ready to get started.
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What Is Transfer of Equity?
An equity transfer is simply transferring a portion of ownership in a property. This can be for many reasons from divorce to family planning. If one owner wants to sell their share they can do so. The difference between a property equity transfer and property sale is one original owner stays on the title deeds. There must always be at least one legal owner and no more than four. Also, every transfer of equity is different.
So, the following steps outline the main process. Additionally, your conveyancer will make sure yours fully reflects and protects your interests.
What Are The 5 Steps Of An Equity Transfer?
Once you have instructed a solicitor they will guide you through the following 5 steps. From what documents you need to the information they will be asking for. Hence, this will help you get prepared for the transfer.
1. Reviewing Title Deeds
Your property solicitor will start with reviewing the current legal ownership. This means taking a good look at the title deeds. All parties will need to agree to the transfer and they will ensure there are no restrictions on the changes.
2. Preparing The Transfer Deed
Next up, they will prepare the transfer of equity documents. The transfer deed will need to be signed by all parties to come into effect. Ensuring all owners are happy with the changes and in agreement.
3. Using Witnesses
Your transfer documents will need to be signed in front of witnesses. This ensures all parties are in agreement and is a legal requirement to protect everyone. In fact, your solicitor will advise on who can qualify as a valid witness.
4. Obtaining Lender’s Consent
If you have a mortgage on the property, consent must be obtained for the equity transfer. Other options include paying off the mortgage or remortgaging the property. This can be discussed with your solicitor who can guide you through the legal steps.
5. Register The Change With Land Registry
Once the transfer has been made, this must be reflected on the land registry. Your solicitor will request a fee and submit the documents so the update can be made.
Will You Have To Pay Tax On An Equity Transfer?
One of the most frequent questions we get asked as solicitors specialising in equity transfers is “what are the tax implications”? Exact tax implications depend on your transfer. However, the following might apply.
1. Capital Gains Tax
Currently no CGT is chargeable when the transfer is between spouses, civil partners or charities. However, if you are transferring to children or other partners it may do. Reliefs and exemptions are available which we can advise on based on your circumstances.
2. Stamp Duty
If you are transferring the debt of a mortgage to a new owner, they will be liable for stamp duty based on the transferred amount. If you are paying off the mortgage this will not apply. Court orders can sometimes trigger SDLT exemption, it is best to discuss your complete circumstances with your solicitor for clarity.
3. Inheritance Tax
Inheritance tax will not apply if the donor lives for seven years beyond the transfer.
Do You Need To Use A Solicitor For An Equity Transfer?
Yep, you bet. A transfer of equity is a legal process and using an experienced solicitor matters. You want peace of mind; the transfer protects your interests and is legally binding. A solicitor will advise you through each step and ensure you are aware of both your legal liabilities and tax implications. You may also wish to use a tax advisor on how to structure and tax liabilities before starting the process.
Finally…
Transfer of equity can be a relatively straight-forward process when using an experienced conveyancer. As long as no restrictions apply, everyone is in agreement and lender approval can be obtained. It is important to understand there may be tax implications of your transfer. These apply when transferring to children or partners outside of marriage or a civil partnership. Therefore, separate tax and legal advice is highly recommended to ensure you structure an equity transfer in the most beneficial way. As for the legal part, we are here to support you whenever you are ready.
