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Transfer of equity involves changing the ownership of a property, either by adding or removing someone from the title deeds or by changing the shares among existing owners. Read on to find out more about what it is and how transferring equity works.
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There are any number of reasons why you might wish to transfer equity in your home. Perhaps your partner is moving in and you’d like to own the property together, or maybe you want to give your adult children some security through giving them a stake in your property. Whatever the reason, find out how the process to a transfer of equity works.
In this article:
A transfer of equity changes the ownership of a property. You have to complete a transfer of equity when a property’s owner adds or removes a person (or people) to or from the title of their home, altering the ‘ownership’ of the property from a legal perspective.
Our video details all the essential information relating to transfers of equity.
Duration: 1 minute 45 seconds
In relation to property, equity is a legal term that explains how much of a property you own. You can think of it as the value of the home minus any outstanding mortgage. So, if your property is worth £300,000, and you have £150,000 left to pay off on your mortgage, your equity would be £150,000.
When you transfer equity, you can either ‘buy someone out’, or ‘gift’ someone. When you buy someone out, the remaining person(s) pay an agreed amount to the leaving person(s) for their share of equity, whereas for a gift, no money will be exchanged for a share of ownership.
The most common reasons to transfer equity in a property are:
Separation or Divorce: One party transfers their share to the other
Marriage or Partnership: A single owner adds their spouse or partner to the property title
Restructuring Financial Arrangements: For tax benefits or inheritance planning, property titles may be adjusted
Selling your share in a property
Gifting a property (or share in a property) to a child or family member
There are two types of equity transfer, full or part.
Full transfer of ownership - If you are gifting the property in its entirety to another person (e.g. a child or family member).
Part transfer of ownership - If, for example, you are the sole owner of a property, and you want to transfer a share (e.g. 50%) in the property to your partner, spouse, child or someone else.
There are a few reasons why you might need to transfer equity in your property, reasons such as:
Changing from joint ownership to single ownership: When a couple who jointly own a property decide to separate, one partner may transfer their share to the other. This changes the ownership from two individuals to one. This situation can also occur if you bought a house with a friend or investment partner and want to buy the other's share.
Changing from single ownership to joint ownership: A person who owns a property alone might decide to add someone else to the title. This could be a partner, friend, or family member; such as an adult child. The ownership would then go from one individual to two.
Replacing an Ex-Partner: In some cases, an ex-partner is removed from the property's title, and someone else is added. This maintains the same number of owners and simply changes the named individuals involved.
When transferring equity and adding someone to the deeds (title) of your home, you’ll need to choose the type of legal joint ownership that suits your situation.
In England and Wales, up to four people can co-own a property as either joint tenants or tenants in common:
As joint tenants, you and the other co-owner(s) each have an equal share in the property.
If one joint tenant passes away, their share automatically goes to the other joint tenant(s) under the Right of Survivorship. This means you can’t leave your share of the property to someone else in your will; it will go directly to the surviving co-owner(s).
After the last surviving partner’s passing, the property can be left to whoever they choose.
Tenants in common can divide ownership unequally, such as 50% each or different proportions like 75% and 25%.
This arrangement might be ideal if one person has contributed more financially to the purchase of the property.
If a tenant in common dies, their share doesn’t automatically pass to the other co-owner(s); instead, it’s distributed according to their will.
When transferring equity, your conveyancing solicitor will guide you on which joint ownership option best fits your needs.
Get a quote for your transfer of equity today. Simply complete the quote form, and one of our Move Specialists will get in touch with you
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If you are separating from a partner, or need to pay Capital Gains Tax (CGT), the current market value of a property will need to be determined. An independent property valuation can normally be obtained through a chartered surveyor.
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You’ll have to apply for a remortgage, or new mortgage. Because the property’s ownership is changing, affecting its equity, your mortgage provider will need to account for this. If you’re adding someone to the property’s title, then the mortgage lender will need to carry out checks as the new person(s) will become equally liable for the mortgage and repayments.
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Because at least one party will remain in ownership, a transfer of title deeds is usually a much simpler process than a standard property sale or purchase. Nonetheless, you’ll still need to instruct a conveyancer to guide you through the legal process.
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Your conveyancer will register the deed transfer. The new owner(s) will then be registered and the details updated with the HM Land Registry (HMLR).
If you have a mortgage on your property you will need to instruct a conveyancer to complete the legal work required during a transfer of equity.
You’ll need to provide official copies of the property’s title to your conveyancer, along with all contractual documents regarding any mortgages. Your conveyancer will then:
Verify ID
Check source of funds
Complete all legal work, including checking the TR1 form has been filled in correctly
Communicate updates to your mortgage provider
Communicate updates to the property’s freeholder
If someone will be joining your title, both parties can be represented together. However, if someone is to leave, the parties will need to have separate legal representation.
Finally, your conveyancer will send the mortgage deed for you to sign and then facilitate the transfer of any funds between parties. Outgoing parties will need to complete and sign an ID1 form, in the presence of their conveyancer.
Once completed, your conveyancer will calculate any stamp duty liable to HMRC and facilitate payment of it. They’ll also ensure details of the new ownership are logged with the land registry.
If there isn’t a mortgage, things are more straightforward. All parties just need to sign the transfer deed form and file it with the land registry.
There are 2 forms available for this transfer request; a TR1 or TP1.
TR1 form: If you are transferring full ownership of the property
TP1 form: If you are transferring part ownership of the property
This needs to be accompanied by the land registry’s AP1 form, a standard form used to notify HM Land Registry (HMLR) of the change of ownership in the property.
It is likely you will also need to complete a Certificate of Identity Form (ID1). This verifies your identity to the HM Land Registry.
If the value of the transaction amounts to more than £40,000, then a stamp duty land tax certificate may also be required.
If you don't have a mortgage, you could consider completing the transfer process on your own. However, it's very important to get the transfer and registration done correctly to avoid any potential legal or tax issues.
By working with a conveyancing solicitor, you can be confident that everything is handled properly without any technical or legal errors.
There are extra steps that will need to be carried out when the transfer of equity is for a leasehold property.
Your conveyancer will need to obtain and review a copy of your lease
You may need the freeholders consent to change the owner(s) of the property
There may be an administration fee payable to the freeholder to register the change of owner. Your conveyancer will contact your freeholder to confirm this
The cost to transfer equity is calculated on many factors, such as your property’s value, whether it is a leasehold or freehold and if you need to remortgage. Costs you may have to pay when transferring equity include:
Conveyancing fees – this is for your conveyancer to complete the required legal work. In most cases, conveyancing will cost somewhere between £100 - £500 +VAT.
Search indemnity insurance – this insurance means that you can transfer equity without having to get conveyancing searches and that you are covered if anything crops up as a result of not getting them in the future. The cost for this could be anywhere between £20 - £300.
Mortgage fees – when you add or remove someone from the mortgage, you will have to let your mortgage provider know, so they can provide their approval, they may administration fees for this.
Leaseholder fees – if the property is a leasehold, you’ll have to let your freeholder know that you plan to add or remove someone from the title deeds. This can cost between £200 - £300.
Remortgaging fees – if you need to remortgage when adding or removing someone from the mortgage you will have the standard remortgaging costs to pay.
Land registry fees – the land registry has a cost to update the information on the title deeds. The cost for this could be anywhere between £20 - £305 depending on your property’s value and whether or not you can update them electronically.
Stamp Duty Land Tax (SDLT) - SDLT is payable if a person takes on equity or a mortgage which is worth over £125,000. You can find more information on when or when not stamp duty is payable on the Gov.uk website.
Where a person(s) is taking on equity or a mortgage worth more than £250,000 in total and the chargeable consideration is more than £125,000, then stamp duty may need to be paid on it. The precise amount to pay is calculated using bands.
If a party is leaving the property’s title due to divorce, then no SDLT will be owed.
The tax implications of an equity transfer depend on the nature of the transfer. There’s currently no capital gains tax (CGT) charged on transfers to your spouse, civil partner, or a charity.
However, transfers to anyone else, including children, are subject to CGT. You get an annual exemption of £11,000, and anything beyond that will be charged at 18% or 28%. The specific rate depends on whether you’re a basic or higher rate taxpayer, as well as the size of the gain.
To reduce the CGT, consider transferring the property, or a share of it, into your spouse’s name to utilize two annual allowances and potentially minimize the CGT. For instance, this strategy can be beneficial if you are planning to transfer property to a child.
Your conveyancer can provide you with detailed guidance tailored to your situation.
A transfer of equity can also be treated as a potentially exempt transfer (PET) for inheritance tax (IHT) purposes. If the value of the transferred property exceeds £325,000, the liability reduces gradually over seven years. After this period, the property would no longer form part of your estate for IHT calculations.
By understanding these tax implications, you can make more informed decisions about transferring property and potentially reduce your tax liabilities.
Professional guidance can make an equity transfer run smoothly and eliminate any stress for you. Our expert teams can assist with all kinds of equity transfers, including:
With or without a mortgage: Whether your property has an existing mortgage or not, professional guidance ensures all financial aspects are properly managed.
Leasehold properties: If your property is leasehold, specific legal intricacies need careful handling.
Money transactions: When money is changing hands during the transfer, or if you want to gift shares in the property, expert advice guarantees everything is legally sound.
Creating a trust: Setting up a trust involves complex legal frameworks that are best managed by professionals.
Due to the amount of legal work involved, it’s recommended you appoint a conveyancer to complete this work on your behalf and help push your transfer through.
If you’re making changes to the title of deeds with the Land Registry, you will need to remortgage, as your mortgage lender will need to consent to the changes and update the mortgage with the new details.
Absolutely, you can transfer equity to someone under 18, but there are legal stipulations to consider.
Since minors are not legally permitted to hold property directly, you will need to set up a trust deed. This document designates a trustee who will manage the property on behalf of the minor.
Once the individual turns 18, the equity can be transferred to them. This ensures that the property is held securely until the recipient is legally able to own it outright.
Chargeable consideration refers to the total value involved in the transfer of property. This includes not just the equity but also the value of any existing mortgage on the property. Essentially, it represents the combined financial worth that is used to determine if you need to pay stamp duty.
However, the requirement to pay stamp duty isn't solely based on the total monetary value. Other factors come into play, such as the specifics of the property transfer. For instance, no stamp duty is required for couples legally separating or transferring equity by court order.
Given that individual circumstances can significantly impact what is considered chargeable, consulting with a conveyancing solicitor is crucial. They can provide tailored advice on the expected costs based on your unique situation.
Total Value: Includes both equity and mortgage.
Nature of Transfer: Specific types of transfers may be exempt from stamp duty.
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