Owning a property is not just about having a roof over your head; it’s about having a tangible asset that holds significant value. However, there may come a time when you need to change the ownership structure of this asset. This is where a Transfer of Equity comes into play.
A Transfer of Equity, in simple terms, is the process of changing the legal ownership of a property. This could mean adding someone to the property title, such as a spouse or a family member, or removing someone from it, perhaps due to a separation or a change in financial circumstances.
This guide aims to demystify the process of a Transfer of Equity, providing you with a clear understanding of when it’s required, what it involves, and how to navigate the process smoothly.
A Transfer of Equity takes place when a property owner adds one or more people to the ownership or legal title of the property, or when they want to remove one or more people from the title. A Transfer of Equity doesn’t always have to involve transferring any actual money. Confused? You won’t be when you read In-Deed’s comprehensive guide to when a Transfer of Equity is required and what it involves.
What is a Transfer of Equity?
A Transfer of Equity is when a jointly owned property is transferred to a single one of those owners, or when a single owner adds one or more people to the ownership of the property. Equity is the legal term for how much of the property you own. Or, to put it another way, its value minus any outstanding mortgage. So, for example, if your home is worth £350,000 and your outstanding mortgage is £190,000, your equity is £160,000.
When is a Transfer of Equity Required?
A Transfer of Equity can be required in various situations. Here are a few common scenarios:
- Marriage or Cohabitation: When two people decide to share their lives together, they often want to share their assets too. In this case, one party may wish to add their partner to the title of a property they own.
- Divorce or Separation: Conversely, when a relationship ends, a couple may need to divide their assets. If one party decides to keep the property, the other party would need to be removed from the title.
- Estate Planning: As part of estate planning, an individual may wish to add a family member to the title of their property to ensure a smooth transition of assets after their death.
- Tax Planning: In some cases, a Transfer of Equity may be carried out for tax purposes. For example, if one party is in a lower tax bracket, transferring a portion of the property to them could result in significant tax savings.
- Paying off a Joint Mortgage: If a property is owned jointly but one party pays off the mortgage, they may wish to become the sole owner of the property.
What if there is no equity or negative equity?
A Transfer of Equity often involves one person “buying” the other out of their share of their home; for example, when a relationship ends and one half of the marriage or partnership intends to stay in the home, they will then buy their other half’s share. This can be done by remortgaging with an existing lender or moving the mortgage to a new lender completely. The finance is provided by the lender to “buy out” the other person and the Transfer of Equity will the reflect the new legal ownership.
Do I need a solicitor to arrange a Transfer of Equity?
To protect your own interests, it is always better to engage a solicitor when the legal ownership of your home is involved. Some Transfers of Equity are very simple to process, but others can be complicated and require more work. In-Deed can engage a solicitor to act on your behalf and ensure your rights and finances are protected.
What does the Transfer of Equity involve?
When you instruct a solicitor through In-Deed, you will receive a Transfer of Equity pack to complete and return. Your solicitor will then liaise with the other party’s legal team if another solicitor is involved. Once all parties have agreed on the Transfer of Equity, a Deed of Transfer will be drafted for each party to sign. The Deed of Transfer will contain all the legal formalities of who know owns what. Where a remortgage or new mortgage is required, the formalities for this lending should also be completed by the time the Deed of Transfer is signed.
Will my solicitor work with my lender?
Your solicitor will act on your behalf for both the equity transfer and any mortgage/remortgage as one case. Your solicitor also has to represent the interests of the lender when completing the legal formalities, as happens in all conveyancing.
What happens now?
The Transfer of Equity is complete once the Deed of Transfer has been signed by everyone involved. Your solicitor will complete the transaction by returning a Stamp Duty Land Tax return to HMRC (even when no stamp duty is to be paid) and will register all new interests and charges over the property at HM Land Registry. Now the property is formally registered in the names of the new owners.
Navigating the process of a Transfer of Equity can seem daunting, but with a clear understanding of what it involves and when it’s required, it becomes a manageable task. Whether you’re entering a new stage of life, planning for the future, or adjusting to changes in your financial circumstances, a Transfer of Equity can be a valuable tool in managing your property assets.
Remember, it’s always wise to seek professional advice when dealing with such significant legal and financial matters. A solicitor can guide you through the process, ensuring all legal requirements are met, and your interests are protected.