This is the legal process of removing or adding someone to the property’s title deeds. When such a process takes place, a minimum of one original owner will remain on the deeds.
When Is It Used?
There are circumstances in which this will be an appropriate course of action.
. A relationship breakdown may mean you need to divide assets, and the family home or other properties may be one of them.
. In a new relationship the property owner may wish to add their new partner to the deeds and will transfer equity to achieve this.
. In the current climate friends are banding together to buy property. It may be that one or more of them are moving on and other title holders wish to buy out their interest.
. Making your tax liability more efficient may involve transferring some equity to children or other family.
Although you can carry out the process yourself, it is advisable to employ a solicitor who specialises in equity transfers. The Law Society have produced a practice note for their members on equity transfer and suggest that solicitors must advise clients about the benefits and risks of gifting assets and explain their own role in the process.
You can find more information on transfer of equity online.
What Is Being Transferred
So exactly what is being transferred by this process? Equity in a property is the percentage the individuals on the title deeds own – in other words, the current value of the property less any outstanding mortgage or charges. To calculate this, you will need to get an up-to-date value of the property. If there is an outstanding mortgage, you must also get the approval of your lender before the transfer takes place.
If you are a single owner, you will need to decide how much equity you wish to transfer. If entering into a partnership, that amount may be 50%, but when parents are transferring to children, they may wish to gift virtually all their interest.
One other issue to consider is the impact of Stamp Duty. If the property still has a mortgage attached, and it is transferred into joint names with a 50% transfer of equity, the transferee is responsible for half the mortgage. This is known as a chargeable consideration, even if no cash has changed hands. Your solicitor will advise you if any liability attaches in your case.
Another possible liability arises when equity is transferred to children, as this could attract capital gains tax. Again, seek advice from your solicitor on how this might be reduced.
Finally, when adding a name to the title deed, you might want to consider a Deed of Trust.