Property ownership doesn’t always stay the same. While you might buy a home in your sole name, you may later decide to own it jointly with a partner. In other situations, ownership might change between family members as part of wider financial or estate planning.
These changes are commonly dealt with through a transfer of equity. Unlike a standard property sale, the property doesn’t necessarily change hands. Instead, legal ownership changes by adding or removing one or more owners. Although this can sound straightforward, several things to consider before making the change. An existing mortgage, Stamp Duty Land Tax, how the property will be owned, and the reason for the transfer can all affect the process.
What is a Transfer of Equity?
A transfer of equity is the legal process for changing the ownership of a property without selling it. For example, if you own a property by yourself and want to add a child as an owner, you can do this through a transfer of equity. Similarly, if two people own a home together, one can transfer their interest to the other, leaving the remaining person as the sole owner.
The word ‘equity’ can be confusing because people often associate it with the amount of money tied up in their home. While the financial value of each person’s interest can be relevant, a transfer of equity is fundamentally about changing the ownership of the property. The change will usually need to be formally documented and registered with HM Land Registry.
When Might You Need a Transfer of Equity?
There are several circumstances when you may need to change property ownership without a conventional sale. The reason for the transfer affects how it needs to be handled, particularly if there is an existing mortgage or money is changing hands.
Adding a Partner to Your Property
If you bought a property in your sole name and later marry, enter a civil partnership or decide to own the home with your partner, you can use a transfer of equity to add them as a legal owner.
As part of the process, you will need to decide how you want to own the property together. Depending on your circumstances, you may choose to be joint tenants or tenants in common. If there is a mortgage, the lender will also normally need to agree to the change.
Transferring a Property After Separation
A transfer of equity is also commonly used when a couple who jointly own a property separate and one person is going to keep the home. One owner can transfer their interest to the other, potentially alongside a payment for their share of the property.
If there is a mortgage, however, agreeing between yourselves that one person will own the home doesn’t automatically release the other borrower. The lender must be satisfied with the new arrangement. Where the transfer forms part of a divorce or separation, it should also reflect any relevant financial agreement or court order.
Transferring Equity Between Family Members
Transfers can also take place between other family members. For example, a parent might want to transfer their interest in a property to an adult child, or one family member may be taking over another person’s share in a jointly owned property.
Being related doesn’t change the formal legal process though. Depending on the circumstances, SDLT, Capital Gains Tax or Inheritance Tax could be relevant, particularly where an interest is being gifted rather than purchased.
Tax and Estate Planning
Property ownership can form part of wider tax and estate planning, and there may be circumstances where someone considers transferring an interest to a spouse, civil partner or another family member before they die. However, a transfer of equity should not be viewed as a straightforward way to reduce tax. The implications depend on factors including who receives the interest, whether money or mortgage debt is involved and what happens after the transfer.
For example, giving away an interest in a home while continuing to live in it can have different Inheritance Tax consequences from making an outright gift and no longer benefiting from the property. If tax or estate planning is part of the reason for the transfer, it’s essential to get specialist tax advice alongside the conveyancing work.
How Does a Transfer of Equity Work?
The exact process depends on how the property is currently owned, who will own it afterwards, and whether there is a mortgage. Your conveyancing solicitor will usually begin by reviewing the property’s title and confirming the proposed change in ownership. They can then identify any restrictions or existing charges that need to be dealt with and determine whether a lender is involved. The transfer itself will need to be documented correctly. For a registered property, you will also need to register the change in legal ownership with HM Land Registry.
If the property will have more than one owner after the transfer, you need to consider how the beneficial interest in the property is going to be held. Joint owners can be joint tenants or tenants in common, and there are important differences between the two. Your solicitor can explain these options and ensure the documentation reflects your choice.
What Happens to the Mortgage During a Transfer of Equity?
If there is an existing mortgage on the property, this needs to be dealt with as part of the transfer. Removing someone’s name from the property title doesn’t automatically remove them from the mortgage. Likewise, adding someone to the ownership of a property doesn’t automatically make them a party to the existing mortgage.
The lender usually needs to agree to the proposed change. If one owner is leaving the property, the mortgage provider needs to be satisfied that the remaining owner can afford the mortgage on their own. If someone is added, they may carry out more eligibility and affordability checks.
In some cases, a transfer of equity takes place alongside a remortgage. The existing mortgage can then be redeemed and replaced with a new one that reflects the new ownership. This is one reason it’s worth speaking to conveyancing solicitors early. The ownership transfer and mortgage arrangements need to work together rather than being treated as separate matters.
Do You Pay Stamp Duty on a Transfer of Equity?
Not every transfer of equity results in Stamp Duty Land Tax, but it should always be considered. SDLT is based on the amount of ‘chargeable consideration’ involved in the transfer, and this doesn’t necessarily mean that money has to change hands. For example, if someone is added to a mortgaged property and takes responsibility for part of the outstanding mortgage, that can form part of the chargeable consideration.
A transfer described as a gift therefore doesn’t automatically mean there will be no SDLT to pay. Different rules can also apply where property is transferred in connection with divorce, dissolution of a civil partnership, or legal separation. Since the tax position depends on the circumstances of the transfer, it’s important to establish whether an SDLT return is required rather than assuming no tax applies because the property isn’t being sold in the usual way.
Do You Need a Solicitor for a Transfer of Equity?
HM Land Registry does allow property owners to make certain applications themselves, but a transfer of equity can involve more than simply changing the names on the register. There might be mortgage requirements, title restrictions, SDLT considerations, and decisions about how the property will be owned afterwards. If a mortgage is involved, the lender may also require a solicitor or licensed conveyancer to act.
Working with residential conveyancing solicitors in Birmingham can help ensure the legal transfer reflects what everyone has agreed and that the mortgage provider and HM Land Registry requirements are handled correctly. Legal advice can be particularly useful where someone is being removed from the property, money is changing hands, or the transfer forms part of a separation or wider family arrangement.
Speak to Conveyancing Solicitors About a Transfer of Equity
A transfer of equity can be needed at very different stages of property ownership. You might be adding a partner to your home, taking over a jointly owned property following separation, or considering a transfer between family members. Whatever the reason, it’s worth understanding the legal, mortgage and potential tax implications before making the change.
At Ubique Legal, our residential conveyancing team can assist with transfers of equity as well as other property transactions. If you’re looking for conveyancing solicitors in Birmingham, we can discuss your circumstances, explain the next steps, and help make sure the transfer is completed correctly. Contact us today to learn more about our conveyancing services.
