Transfer of equity is the inclusion or exclusion of an individual from a title deed of a property. It is a partial or complete change in the ownership of a property. A transfer of equity is done in the presence of a solicitor. The new title deed will reflect new ownership once both parties bring the process to a close.
Picture this short scenario. You are a real estate mogul. You decide to transfer one of your high-end properties to the management of your son. This transfer will be considered legally valid once the ownership rights in the title deed reflect your son.
As opposed to a property sale, transfer of equity does not necessarily change the entire ownership, unless this is the intention. The former owners of the property might remain when a new one comes in thus changes the list of owners.
When Can A Transfer Of Equity Occur?
Most people have their reasons or intentions on why they want a transfer of equity. The common ones, however, are:
- A New Relationship Or Marriage
If you are in a new relationship or are getting married, and you own a property, you might feel it best to change ownership of that property such that it reflects both you and your partner. Such a transfer will involve adding your spouse to the title deed, which will transfer ownership of a portion of the property to them.
- Separation or Divorce
Visualize that you are looking to separate or divorce your partner. Throughout your time together, you bought assets and jointly owned them. Now, that your relationship is over, you might wonder what to do with those assets. You can decide to keep being joint owners or opt to transfer ownership of each property to one partner. Maybe the matrimonial house can go to your ex-wife together with the kids, while the downtown piece of land to be entirely in your possession.
- Tax Efficiency
You can transfer ownership of your property to your spouse or children to reduce your tax liability. The tax payable according to most state laws reduces once you transfer ownership rights as a gift to a family member. It would, however, be advisable to seek legal consul before transferring ownership for tax purposes.
- Opting Out Of A Joint Ownership
Maybe some time back, you decided to pool funds with a friend or family member to purchase a property. You might have thought of leasing it out and sharing the profits. Now, one of the owners wants out or wants to transfer ownership to one of his friends or relatives. Doing this would call for a transfer of equity. Another instance is one owner seeking to buy out all the others, making him the sole owner of the property.
Process Involved In Transfer Of Equity
The process in the transfer of equity is, on most occasions, simple when the involved parties are in agreement, and when the owners listed on the title deed fully own the property. Factors like taxes, mortgage, or disputes between owners, can at times, come in play, thus complicating the process. Other times you and the other owners might be required to work with different solicitors as opposed to working with one. Each transfer of equity process involves varying factors and situations, and therefore, should be treated as unique. The process, however, follows the same steps. They include:
- Review The Title Deed
The solicitor involved in the transfer will request a copy of the title deed. He or she will examine the parties listed and check for any factors that might restrict the process, for instance, mortgage, taxation, and age of the new owner. The solicitor might as well request for the identity information of the individuals listed on the title deed to confirm their identities.
- Draw the Transfer Documents
Once the solicitor finishes reviewing the title deed, he will prepare the documents for the transfer, with the main one being the transfer deed. The transfer deed serves as legal evidence that a transfer of equity took place. The land registry provides different transfer deeds, depending on the portion of ownership being transferred. A TR1 form, for instance, covers for a full transfer of ownership.
- Inform Third Parties
A third party is any individual who does not necessarily own property but might be affected once it changes hands. In this case, it can be a bank, mortgage lender, or a building agency. Third parties should consent in writing, to the transfer of equity.
All parties involved will then sign the transfer documents to consent to the transfer of ownership. An independent witness should oversee the signing process. In the case of a mortgage, your solicitor should as well send the transfer documents to the mortgage lender.
- Inform The Land Registry
After all the parties consent and sign the transfer deed, your solicitor will inform the land registry so that they can create a new ownership record for the proposed transfer. A fee ranging between €50 and €1000 might be charged, depending on the property’s value.
What If The New Owner Is Less Than Eighteen Years Old?
A person under the age of eighteen cannot legally own property. If the new owner is less than eighteen years old, you might have to prepare a trust deed, then assign a trustee to hold the property until the young lad or lass turns eighteen. The trust deed will act as a covenant that the trustee is holding the property until the new owner comes of age.
Do All Parties Require A Different Solicitor?
One solicitor can serve both parties if no conflict arises. Another suggestion would be to work with two solicitors from the same firm. The law society, however, advises each party to work with a different solicitor if they sense that a conflict might arise, now or in the future. The usual assumption is that a conflict might arise. If one emerges, the same solicitor cannot represent both you and the opposing party. Another factor that calls for the involvement of two different solicitors is if there is money involved. Will the new owner take up mortgage after the transfer of equity? Is the transfer of equity a buyout? Is there any indication that the transfer is in exchange for monetary value?
What If There Is A Mortgage On The Property?
A mortgage is usually the most common inhibitor in the transfer of equity. The lender’s interest is that the debt continues being paid as per the stipulated instalments and timeline. The owners listed on the title deed are liable to ensuring payment of the debt. If your property is a mortgage, you will have to inform the mortgage lender about the transfer of equity.
If a new owner is being added to the title deed, the mortgage lender will assess his or her creditworthiness by running a background check. The lender might prepare some terms and conditions for the new owner, should he decide to take ownership of the property. The new owner can then proceed to take up ownership if he agrees to the conditions, and if the mortgage lender finds him credible beyond doubt. After the transfer of equity, the new owner will be responsible for payment of the debt.
In the case where an original owner wants out, he or she will be withdrawn from the mortgage agreement, meaning that he will not be held liable for the debt in case of default. No lender can allow you to walk away from a credit agreement without overseeing its payment. The mortgage lender will only approve the transfer of equity after ensuring the original owner pays the debt or at least pays his share. If not, then the new owner should consent that he shall be liable to pay the debt after the transfer, failure to which he stands to lose the property.
To avoid these complications, the involved parties can pay the debt in full before proceeding to transfer ownership of a property. They afterwards, will not have to seek approval from the mortgage lender. Another option can be taking up new debt to clear the existing mortgage, then remortgaging the property and henceforth, working with a new mortgage lender.
Payment Of Stamp Duty
A variety of factors need to be considered when assessing whether to pay or not to pay stamp duty land tax for a transfer of equity. If so, how much should you pay? The amount of stamp duty you pay depends on the situation. As per HRMC guidelines, you are required to pay stamp duty when a property is transferred to you, in exchange for monetary value. The term “monetary value” stands not only for money but also for a case where a mortgage transfers from the original owner to a new one.
A few situations that call for an assessment are:
You may have to pay stamp duty land tax if you transfer ownership rights of a property to your spouse. It will, however, depend on whether the property has been exchanged for monetary value. HRMC charges a 2% fee for a monetary value that surpasses the statutory threshold of €125000. For example, say the monetary value is €300000. Deduct the statutory threshold (€125000) from the €300000 to get €175000. The payable stamp duty land tax will then be 2% of €175000, which is €3500. In contrast, if the monetary value is €100000, you will not pay the stamp duty land tax.
- Divorce or Separation
At times, a court order or a prenuptial agreement might require you to divide your assets after divorce or separation. In both cases, you will not be required to pay stamp duty land tax. However, if you decide to buy your partner out in exchange for monetary value, you will pay the stamp duty land tax. This payment will as well follow the HRMC guidelines of 2% and €125000 threshold.
- If the transfer of equity is because of a will agreement, you will pay stamp duty.
- If you transfer ownership of a property as a gift to a family member, you will not be liable to paying stamp duty because the transfer is not in exchange for some monetary value.
It would be advisable to seek counsel from a solicitor if you are not sure on whether to pay stamp duty land tax. Some solicitors can conduct the payment for you, as per your agreement with them. They can as well claim relief for you if your situation does not require you to pay stamp duty.
Transfer of Equity Timeframe
A Transfer of equity usually takes four to six weeks to complete. It might, however, take longer if the parties do not agree or if the property is a mortgage. In the case of a legal dispute, the transfer of equity will have to be held off until the dispute is resolved. In the case of a mortgage, the mortgage lender or any other third party should consent to the transfer. It might take time for the lender to perform due diligence. Another factor that might delay the process is if you opt to remortgage the property with a new lender. The involved parties might as well slow down the process by not providing the necessary documents, paying the required fees or signing the transfer deed on time.
Costs Incurred During Transfer Of Equity
The two main costs that you will incur are fees payable to the solicitor, and registration fee to the land registry. The sum you pay your solicitor will depend on your agreement with him or her, and the sum you pay the land registry will depend on the value of the property. If your transfer of equity involves a mortgage, you might be required to pay a search fee or any other closing costs that might arise. Another cost that you may have to pay is stamp duty land tax, though it will depend on the situation.