Fact 43. Transfer of Equity - what is it?

A transfer of equity is a legal process that changes property ownership by adding or removing names on the title deeds without selling the property.

A transfer of equity is a fundamental conveyancing process that allows property owners to modify who appears on the title deeds of a property. Unlike a traditional sale where ownership passes entirely from one party to another, a transfer of equity involves either adding new owners to the existing title or removing current owners, whilst at least one original owner typically remains. This legal procedure is increasingly common in modern property ownership, particularly as family circumstances evolve and relationships change.

The process fundamentally involves transferring a share or interest in a property from one person to another, or altering the proportions of ownership between existing co-owners. It's important to understand that during a transfer of equity, the property itself doesn't change hands in the conventional sense. Instead, the legal ownership structure is modified through the Land Registry, creating a new configuration of who holds rights to the property.

Transfer of equity situations arise in numerous circumstances throughout property ownership. One of the most common scenarios occurs when couples decide to purchase a property together but initially only one person's name appears on the title. Perhaps one partner had the deposit or better credit rating at the time of purchase, but now both wish to be registered as legal owners. Adding a spouse or partner to the deeds provides them with legal rights and protections regarding the property.

Conversely, relationship breakdowns represent another frequent trigger for transfers of equity. When couples separate or divorce, they must decide what happens to jointly owned property. Often one party wishes to remain in the family home and buys out the other's share. This requires removing one person's name from the title deeds whilst transferring their equity stake to the remaining owner. This allows a clean break financially whilst enabling one party to retain the property without forcing a sale.

Marriage itself can prompt transfers of equity, as couples may wish to hold property jointly once legally married, even if one partner owned it beforehand. This demonstrates commitment and ensures both parties have equal rights to the matrimonial home. Similarly, civil partnerships often lead to the same consideration, with couples reorganizing their property ownership to reflect their new legal status.

Family arrangements frequently necessitate transfers of equity too. Parents may wish to add adult children to property deeds for inheritance tax planning purposes or to help them get onto the property ladder. Alternatively, elderly parents might transfer equity to children who will become their carers, ensuring security for both generations. These intergenerational transfers require careful consideration of tax implications and legal advice to ensure all parties understand the consequences.

Another scenario involves business partners or friends who jointly purchase investment property. As circumstances change, one party might wish to exit the arrangement, requiring their share to be transferred to the remaining owner or a new investor. This maintains the property investment whilst accommodating changing personal situations.

The legal process for completing a transfer of equity follows a structured pathway through conveyancing procedures. Initially, all parties must agree on the terms of the transfer, including what consideration, if any, will be paid for the equity being transferred. Even when equity is gifted rather than purchased, legal documentation must accurately reflect this.

A conveyancing solicitor will conduct title checks at the Land Registry to confirm current ownership and identify any restrictions, charges, or other matters affecting the property. This due diligence ensures everyone understands exactly what interest is being transferred and whether any third parties hold rights over the property.

If a mortgage exists on the property, the lender's consent becomes essential. Mortgage lenders retain a legal charge over the property and must approve any changes to ownership. When someone is being added to the title, lenders assess whether the new owner can afford the mortgage commitments. If someone is being removed, the lender needs assurance that the remaining owner can maintain mortgage payments independently. This often requires a new mortgage application or formal assumption of the existing mortgage by the remaining party.

Stamp Duty Land Tax considerations arise depending on the circumstances of the transfer. When equity is being purchased rather than gifted, and consideration exceeds the threshold, stamp duty becomes payable. The rates and thresholds vary depending on factors including whether this is the buyer's first property, whether the property is residential or investment, and the total value being transferred. Even in divorce situations, if one party pays the other for their share, stamp duty may apply.

The transfer deed itself represents the core legal document that effects the ownership change. This must be properly drafted by a qualified conveyancer, signed by all parties, and registered with the Land Registry. The deed specifies precisely what interest is being transferred, any consideration paid, and how the new owners will hold the property. Ownership can be structured as joint tenants, where all owners have equal rights and the property automatically passes to survivors if one dies, or as tenants in common, where each owner holds a distinct share that can be left to beneficiaries in their will.

Identity verification forms a crucial part of the process. Anti-money laundering regulations require solicitors to verify the identity of all parties involved in property transactions. This means providing photographic identification, proof of address, and sometimes evidence of funds if consideration is being paid.

The costs involved in transfers of equity vary depending on complexity but typically include several elements:

Legal fees represent the primary cost, covering the conveyancer's professional services in handling the transaction. These vary between firms but expect to pay several hundred to over a thousand pounds depending on the complexity and property value.

Land Registry fees must be paid to register the ownership change. These scale according to property value, ranging from modest fees for lower value properties to several hundred pounds for expensive properties.

Mortgage arrangement fees apply if remortgaging is necessary to facilitate the transfer. Lenders charge for processing new mortgage applications or variations to existing mortgages.

Stamp Duty Land Tax may be substantial if applicable, potentially running into thousands of pounds depending on the equity value being transferred.

Search fees are sometimes necessary, particularly if significant time has passed since the property was purchased, to identify any new local authority plans or environmental issues affecting the property.

Understanding the distinction between a transfer of equity and remortgaging clarifies these related but different processes. Remortgaging involves replacing an existing mortgage with a new one, typically to secure better interest rates or release equity, but doesn't necessarily change legal ownership. A transfer of equity changes who owns the property legally. However, these processes often occur together, particularly when someone is being removed from ownership and the remaining owner needs to refinance in their sole name.

The timeframe for completing a transfer of equity typically spans several weeks to a few months. Straightforward cases where no mortgage is involved might complete within four to six weeks. However, cases requiring mortgage approval, particularly when adding someone who needs affordability assessment or removing someone requiring the remaining party to refinance, can take considerably longer. Divorce cases may be delayed pending financial settlements, whilst cases involving multiple parties or complex ownership structures naturally take more time to resolve.

Tax implications beyond stamp duty deserve careful consideration. Capital Gains Tax may apply if the transfer involves property that isn't the transferor's main residence, or if it's an investment property. Inheritance Tax planning often motivates transfers to family members, but gifts must be structured carefully to achieve desired tax efficiency. If the transferor dies within seven years of making a gift, it may still be counted as part of their estate for Inheritance Tax purposes.

Seeking professional legal advice from a qualified conveyancing solicitor is essential for anyone considering a transfer of equity. The legal and financial implications are significant, and mistakes can prove costly. A solicitor ensures all documentation is properly prepared, all parties understand their rights and obligations, and the transfer is registered correctly with the Land Registry. They also coordinate with mortgage lenders, handle stamp duty reporting, and ensure compliance with money laundering regulations.

Transfer of equity represents an important conveyancing tool that provides flexibility in property ownership throughout life's changing circumstances. Whether strengthening family ties by adding loved ones to property ownership, facilitating separation by enabling clean breaks, or restructuring ownership for tax planning, this legal process enables property ownership to adapt to personal circumstances whilst maintaining housing