Transfer of equity explained

When you own a property jointly with someone else, there may be occasions when you want or need to transfer full ownership to you, or to them. Alternatively, you may wish to add one or more people as joint owners with you. Typical examples are:

• On divorce or separation: If you’re divorcing or separating, your home will often be sold to release equity for both parties. But sometimes, either the parties will agree that one will buy out the other’s interest, or the Court will order such an arrangement. This usually forms part of an overall division of assets. Sometimes, a consideration is securing a suitable home for the party with whom children are going to spend the most time.
• On marriage or cohabitation: It may be that one party bought the property before entering into the relationship, and now both parties wish to become co-owners.
• Property owned with friends or family: With ever-rising house prices, more people are buying properties jointly with friends or family. Ultimately, there may come a time when one party wishes to buy out the other.
• Tax efficiency: It can sometimes be tax efficient for Inheritance Tax purposes for (often older) people to transfer some or all of the equity in their home to children or other family members.

Transfer of equity

In all of these situations, to achieve the change legally, a formal transfer of equity is required.

Don’t forget your mortgage

If there’s a mortgage on the property, a transfer of equity cannot take place without the consent of the mortgage lender. A departing co-owner will invariably wish to be released from their liabilities under the mortgage and the lender will need to be satisfied that the remaining owner is able to afford the mortgage on their own.

It is not uncommon to find that while the party remaining in the property has obtained the mortgage lender’s consent, they have not then taken steps to transfer the property to their sole name, often because they do not think it matters if they are paying the mortgage, or their former partner has said they do not want the house. This can cause problems and delays at a later date when the house is sold as the former partner will remain a co-owner.

Beware of Stamp Duty liability

If there’s a mortgage on the property, a transfer to joint names can result in a liability to pay Stamp Duty. Even though no money changes hands, the new owner will be taking on liability for the mortgage debt. As such, anything above the threshold will be subject to Stamp Duty Land Tax (SDLT), usually referred to as Stamp Duty.

If we ignore for one moment the current Stamp Duty holiday and take the example of a property valued at £500,000, which has an outstanding mortgage of £400,000, a new joint owner will be deemed to take responsibility for half of the mortgage (£200,000), which is referred to as the ‘chargeable consideration’. It’s on that amount they must pay Stamp Duty (0% of £125,000 + 2% of £75,000 = £1,500).

If there is no mortgage, there is no liability for Stamp Duty.

Other Fees

In addition to conveyancing fees for your solicitor to undertake the necessary legal work, there will also be a number of disbursements payable to outside agencies, including search fees, and fees for obtaining office copies of the land or charge certificate. In addition, there will be fees payable to the Land Registry to register the transfer of ownership.

How long does a transfer of equity take?

Assuming the parties all agree on the terms, the process is not usually lengthy, unless there are problems with obtaining the mortgage lender’s consent. From start to finish, a typical, straightforward, transfer of equity will take between 2 and 4 weeks. An application is then made to Land Registry for the changes to be recorded and this part of the process will take a little longer.