As our circumstances in life change, so do our financial affairs. Property is a valuable asset to many people and it is important that the lines of ownership are clearly delineated. But more than this, property is also so often a home - a place where we forge or undo our emotional ties. Whether it’s a desire to co-own our property with a new partner or the need to dissolve financial ties after divorce, a transfer of equity is the means through which we can solidify our affairs. 

What is the Transfer of Equity?

The term Equity is often used to refer to a portion of an individual or entity’s ownership in a property. It is usually calculated by deducting any outstanding mortgage from the value of the property. If there are multiple owners, provided they are joint tenants or tenants in common in equal shares, each are entitled to half of the equity in the property. 

A transfer of equity is the process of adding or removing a party from the title to a property or otherwise documenting the adjustment of a beneficial interest in a property. 

Transferring equity in a property is for the most part less complicated and speedier than a conventional sale or purchase transaction. This is because in most cases a less thorough investigation of the title is needed or it could be that the property is already familiar to the parties and so they do not have a need for due diligence. This means in practical terms the delay of going through a contract, enquiries and searches can be avoided, and the parties can enter directly into a transfer deed. 

Why do people transfer equity in their property?

There are many reasons why a transfer of equity may be needed. Some common examples are:

1. Matrimonial split: in divorce proceedings the parties will need to agree what is to happen to the matrimonial home and in many cases it will be transferred into the ownership of one party. Similarly, if a couple own a buy-to-let portfolio that needs to be divvied up they might reach an agreement where the equity is split between themselves.
2. Gifting properties within family: another common example of a transfer of equity could be parents transferring property to their children as part of tax planning procedures or simply to do so as a form of gift.
3. Estate administration: upon death, a property owner may have left property in their Will to one or more persons. If the property is transferred directly to their names pursuant to the terms of the Will this is technically an ‘assent’ which is a form of transfer specific to beneficiaries. It can be that those beneficiaries agree to modify the terms of the Will and transfer their inherited equity to one another and reflect this in the form of a transfer. Additionally, there could be alternative arrangements where there is a surviving proprietor and the trustees of the deceased’s estate could be added on the title as trustees.
4. Changing relationships: it could be that a property is owned in the name of one individual who wishes to add their partner to the deeds to their house. This would fall within the umbrella of a ‘transfer of equity’ and the parties would enter into a transfer deed from sole to joint names.

Whatever the reason for a transfer of equity, it will always benefit from legal oversight so the parties can ensure that they have received the necessary advice and that the form of transfer is correctly drafted. In several of the scenarios described above each transfer may require suitable provisions within the deed to reflect the reason for the transfer and ensure that each party has their respective share documented. Parties transferring equity might, for example, require there to be Trust provisions documenting their respective shares of ownership or require an ancillary Declaration of Trust for which you would require a solicitor, in any event to advise whether it might benefit the parties. The advice received from a solicitor could far outweigh the upfront cost of legal expenses.

What is required to carry out a transfer of equity?

All of the registered proprietors of a property need to agree in order to proceed with a transfer of equity as they must ultimately be a party to the transfer deed and sign the same before it can be lodged with the Land Registry. 

A typical roadblock to a successful transfer of equity is disagreement between the parties and this could be down to a consensus on what the equity in the property is and what each party is entitled to. For example, the parties may wish to factor in the purchase price, legal expenses, mortgage payments and refurbishment/maintenance costs. 

To proceed with a transfer of equity in the case of registered properties you do not necessarily need to be able to provide your solicitor with the deeds to the property as this can be obtained from the Land Registry. In the case of unregistered properties it is important that you can provide your solicitor with the deeds. 

The process itself can be simple but as in all transactions there will be many variables to this depending on how many parties are involved, whether there is a mortgage finance on the property, whether there are any restrictions on the title and so on. 

What can I expect from the process of transferring equity?

The process of transferring equity could be briefly summarised as involving the following key steps:

1. Providing your solicitor with instructions. Your solicitor will send to you their terms of business, an estimate of costs and then you will be required to complete their onboarding process. Solicitors are required to obtain suitable ID for each party they represent and may have different facilities for doing this i.e. in person or remotely using a third party. For more information on how to instruct a solicitor please see: How to Instruct a Solicitor for a Property Transaction
2. The next step is for your solicitor to review the title documentation and prepare a suitable transfer deed based on the instructions they have been provided with.
3. When approved the transfer deed can be signed by the parties. At this stage your solicitor may send any additional documentation to be signed, for example, if a management company requires each owner to enter into a deed of covenant. Transfer deeds need to be signed by an independent adult witness and this can be your property solicitor. Your solicitor will need the wet ink transfer unless it is executed electronically in line with Land Registry requirements for digital signatures and witnessing.
4. Application to HM Land Registry. Your solicitor will submit an application to register the transfer with HM Land Registry whereafter it will remain pending with the registry for some time. On completion of registration the title will be updated and your solicitor will send this to you. The Land Registry charge a fee for the registration which is dependent on either the value of the property or what consideration is paid as part of the transfer. 

Something to note is that solicitors are guided by various rules set by their regulator pertaining to conflicts of interest. This might mean your solicitor is not able in some cases to represent all of the parties involved in the transfer due to the potential for a conflict scenario to arise. This could be more likely in some types of transfers than others, and there are some exemptions which apply. This will need to be judged on a case by case basis and your solicitor will ultimately let you know how to proceed.

Where a party is not represented they are able to proceed but are required to complete a Land Registry ID1 form with an independent solicitor or notary to have their identity verified. Independent advice is always encouraged. 

How long will the process take?

A straightforward transfer of equity is likely on average to take between four to six weeks though in some situations it could be quicker or slower, it all depends on the circumstances of the case. A gift of a property with a conventional title from say parents to their child with no consideration, no mortgage and no third parties could be done within a couple of weeks. On the other hand if a property is subject to a mortgage and a court order it is likely to take longer. 

What effect does an existing mortgage have?

As mentioned just above, transfers of properties subject to mortgage finance are likely to take longer because it makes the transaction more complex and in some cases involves a re-mortgage as well as a transfer. Where a charge is registered there is likely to be a restriction on title preventing any disposition without the consent of the lender. 

In most cases, the mortgage is dealt with in one of the following ways:

1. The mortgage is redeemed by the transferor.
2. The transferee obtains a new mortgage. On completion, the mortgage advance is paid to the transferor who uses the balance to redeem the existing mortgage.
3. The terms of the existing mortgage are varied to add the incoming transferee as a party to the same. This tends to only happen where the existing registered proprietor is adding another party to the deeds and remaining on the title.
4. Where there are joint proprietors and the property is being transferred into the sole name of one of them, the lender may agree to release one party from the mortgage. The bank might insist on being a party to the transfer deed and executing the same. 

In each case the parties will need to liaise with their lender and ensure they hold agreement to the proposed method of proceeding. A further complication as a result of mortgage finance is that lenders need to be assured their security is good and marketable and they will rely on their solicitor to confirm this. Consequently it might require your solicitor to carry out searches against the property and increase their due diligence, all of which takes time. 

Are there any tax implications in a transfer of equity?

In any transfer of equity scenario it is strongly recommended that each party receive tax advice as solicitors are not tax experts.

It is important for the parties in a transfer of equity to consider whether there might be a liability in respect of the following taxes:

1. Capital Gains Tax: Capital Gains tax is the tax on the profit where a property has been disposed of and that asset has increased in value since it was acquired. There are some exemptions for this tax, one being transfers between spouses.
2. Inheritance Tax: If a property is gifted and the giftor/transferor dies within seven years from the date of the transfer, the value of the property might be subject to inheritance tax on the deceased’s estate.
3. Stamp Duty Land Tax: Stamp duty is a property specific tax and is chargeable where one party acquires an additional or further interest in property. It is a wide ranging tax and it is chargeable not just on consideration paid for a property but also the release or transfer of a debt including a mortgage.  Because of this, it is common for there to be an SDLT liability on the transfer of property. 

There are some exceptions to this, for example, where parties are separating pursuant to a court order which contains provisions for the transfer of a property or where a property is transferred under the terms of a Will. SDLT is not payable where there is no consideration but it may have implications for the transferee for any future acquisitions. 

It is important to receive specialist tax advice and ensure that your solicitor has been informed of any independent advice so that they can correctly submit a return to HMRC, though they do not need to be notified of every transaction.

Is it possible to transfer equity without a solicitor?

We strongly recommend that you seek legal advice from a solicitor and where necessary tax expert if you are considering undertaking a transfer or equity. If you are receiving a property for example, you will want to ensure that you are informed of any potential tax liabilities, that the transfer of properly drafted and also that it is submitted to HM Land Registry correctly. It can be a complicated process and without counsel you would be at risk of  delaying matters and potentially even incurring fines.

In summary, transfers of equity can be wide ranging and each matter should be carefully considered by your solicitor on a case by case basis who can give you the appropriate advice and proceed accordingly. 

Girlings have a team of experienced property solicitors and conveyancers who would be happy to guide you through the process and make it as stress free and straightforward as possible.  If you have a query in connection with a transfer of equity matter, please do not hesitate to get in touch with a member of the Residential Property team.