When it comes to transferring assets and ownership, it’s essential to understand the ins and outs of equity transfers. This guide provides an overview of what transfers of equity are and what you need to know before making one.
What is equity?
The value of your property that you own is referred to as equity. It’s the disparity between your property’s present value and the amount you still owe on your mortgage. For instance, if you owe £100,000 on your mortgage, but your house is worth £125,000, your equity will be £25,000.
What is a transfer of equity?
If you want to add or remove someone from the title deeds of your property, you’ll need to go through a legal process called a transfer of equity. This simply means transferring the equity from one person to another without a property sale occurring.
When would you need to do a transfer of equity?
There are a few reasons why someone might want to do an equity transfer. Here are some of them:
1) To change the property ownership
If you have entered into a new relationship where you would like to share ownership of an asset like a house and mortgage, you might want to transfer the equity in your property to your new partner. This will make them an owner of the property and give them more rights and responsibilities.
Likewise, if your relationship ends or you go through a divorce, you can divide or transfer the equity back to yourself.
2) To make a property more tax-efficient
If you’re a homeowner, you might want to give your children or other family members equity to be more tax-efficient. This is because you can gift them a certain amount of money each year, such as £3,000, without having to pay any inheritance tax on it.
3) To enter a joint purchase
If you’re buying a property with someone else, you’ll need to transfer equity into their name to make them an owner of the property. This is known as a joint purchase, the most common way of buying a property.
The Process Involved in a Transfer of Equity
The process of transferring equity can be a little complicated, so it’s best to seek help from a conveyancing solicitor. However, here’s a basic overview of what you’ll need to do:
Step 1: Take a copy of the title deeds
Your solicitor will need an official copy of the title deeds to start the transfer process. They will review it to check for any mortgages or other restrictions on the property. They will also check the identities of each party involved in the transfer.
Step 2: Prepare the transfer deed
Your solicitor will then draw up a document called a transfer deed. This is a legal agreement that sets out the terms of the transfer. The deed will include the names of each party involved in the transfer, their addresses, and their contact details.
Step 3: Get the consent of any third parties
If the property is being transferred subject to the current mortgage, the lender will need to become a party to the transfer deed. They will need to provide their written consent before the transfer can go ahead.
Step 4: Sign the deed
The next stage is to meet with your solicitor and an independent witness to sign the papers. The witness will need to be someone who isn’t involved in the transfer and doesn’t have any financial interest in the property.
Step 5: Send a notification to the Land Registry
Finally, the Land Registry must be notified of the transfer. They will then update the title deeds to show the property’s new ownership.
Costs Involved in a Transfer of Equity
The expenses involved in transferring equity will vary depending on the situation. Here are the most common fees associated with a transfer of equity:
Land Registry Fees
The Land Registry fee is £45 for standard registration, but this still depends on the property’s actual value. This fee covers the cost of registering the equity transfer with the Land Registry.
Title Search Fees
The title search fee is usually a set amount, and it’s based on the property value. The title company will research the public records to ensure there are no outstanding claims or mortgages on the property.
Mortgage Fees
If you’re re-mortgaging the property, you’ll need to factor in the mortgage fees, too. The mortgage fee covers the lender’s costs associated with processing your application. For instance, they can charge for valuing the property, checking your credit score and drawing up the contract.
Solicitors’ Fees
Solicitors’ fees will vary depending on the solicitor you use and the services you require. However, as a general rule, solicitors will charge around 1% of the property value. This means that if the property is worth £200,000, you can expect to pay around £2,000 in solicitors’ fees.
How Stamp Duty Affects a Transfer of Equity
If the property is being transferred to a new owner, Stamp Duty Land Tax (SDLT) may be payable. This tax is charged on the purchase of a property, but it will depend on the property value and the percentage of equity being transferred.
For instance, if you’re transferring equity as part of a divorce settlement, no SDLT is payable. However, if you’re transferring equity to a new owner, SDLT may be due because the property’s value has increased.
A transfer of equity is a complicated process that requires the assistance of an experienced solicitor. However, this guide should be an excellent place to start in helping you navigate all the steps involved in transferring ownership.
KMC Legal is a team of conveyancing solicitors who are experts in all aspects of property law. If you need advice on transferring equity, please don’t hesitate to get in touch. We would be happy to help.
