Transfer of equity means transfer of ownership. It is a phrase that is usually used in reference to land and buildings (particularly residential property), but can also apply to other assets including shares in a company.
This article considers a transfer of equity in respect of land and buildings.
The transfer is recorded by deed. It is common to refer to someone being added or removed from the deeds of the property, but technically, a new deed records each change of ownership.
Equity is any share in the property - it doesn't necessarily have to be a complete transfer of ownership.
Equity might transfer from one person to another (a one to one transfer), from one person to two joint owners (a one to two transfer), from two owners to one (a two to one transfer) or any other combination.
The only requirements are that the property remains owned by at least one person and no more than four.
When do equity transfers take place?
There are many circumstances where ownership may change. Examples include:
the property might be sold completely to unrelated owners
one current owner may buy the equity of one or more other joint owners (which is increasingly common as family members buy together)
a share in the property might be given as a gift to another person (usually for tax planning purposes or to be able to protect the value of the property from care costs)
the property might be passed on as a gift under a last will and testament
the property might be given to an ex-husband, -wife or -partner as settlement in divorce
Does a solicitor need to be involved?
A conveyancing solicitor may be involved to transfer equity, but it is not always a requirement. Solicitors tend to be involved when the circumstances become more complicated:
when a mortgage is involved and the lender wants to ensure that the property is reasonable security for the loan and that he, she or it is included on the deeds as an owner
where the transfer is conditional on the new owner being satisfied of the condition of the property (where searches are required)
where there may be disagreement (for example, if the property is transferred as settlement in a divorce)
Alternatively in these circumstances, a solicitor may not be used, and instead a Licensed Coveyancer may take on the same work.
Conditions of transfer
There may be conditions attached to the transfer.
If the property is left as a gift in a Will, the beneficiary of the Will (the person or people who inherit it) may be subject to certain requirements, such as continuing to live a certain number of days after the person who has died, or reaching a certain age at which the person is deemed to be responsible enough to own the property.
The property may be exchanged for money (i.e. bought and sold), some of which may be money provided by a third party who takes rights over the property (a mortgage lender). It may be that the property may not be sold without the permission of the lender.
Process of transfer
The process of transferring ownership from one individual to another is as simple as the owner or owners signing a deed of transfer and updating the Land Registry.
However, there may be other work involved to get to that stage:
Review of the existing title deeds - to confirm existing ownership (and right to transfer)
Preparation of the transfer deed and other documents
Meeting of the parties to sign the deed
Notification of existing and new lenders and obtaining their agreement
Registration of the deed at the Land Registry (which may involve paying a fee that depends on the value of the property)
There may be another contract that obliges the owner to sign the transfer deed, such as a sale agreement or a Will.
Using DIY documents
If the transfer is a straightforward conveyancing process, it may be possible to use a DIY pack of documents and avoid paying for a solicitor.
A kit should have all the document templates that you require, as well as guidance as to how to use them.
Do I need to pay Stamp Duty?
You may need to establish a current market value for the property and for the share being transferred.
If you choose for the owners to hold the property as tenants in common rather than as joint tenants, different owners can have different percentage shares.
Stamp Duty Land Tax (SDLT) may be payable on the chargeable consideration during a transfer of equity. This is usually the value of the share of the property being transferred without taking into account any mortgage. SDLT is charged on transfers of value, not just of money. So a gift can be subject to Stamp Duty.
If you want to transfer property into joint names, for example, after marriage, then you could also be charged Stamp Duty.
Alan owns a property valued at £600,000 has an outstanding mortgage of £200,000. When he marries Bonny, they decide that she should hold half the house as tenants in common so that she can leave it to other family members in her Will.
Bonny takes on half of the mortgage. This is referred to as chargeable consideration. She pays a percentage of the value of her share of the mortgage over the threshold for SDLT.
If there was no outstanding mortgage, no stamp duty would be owed.
If you want to add someone onto the title to your property, we highly recommend that a Deed of Trust is put in place to record the ownership, particularly if you hold unequal shares.