What is a transfer of equity?
The first thing to understand about a transfer of equity is that it is not like a sale and purchase. Transfer of equity, instead, involves adding a new party to an existing title or removing one of them. This means the legal ownership of a property is being changed.
If you are undertaking a transfer of equity solicitor advice may be needed, indeed, it is recommended that you employ a solicitor to undertake this work for you.
You may be able to complete this process yourself, but it is advisable to seek the advice of a solicitor and one who specialises in equity transfers. The Law Society recently produced a practice note covering equity transfer for their members, suggesting that they need to advise clients on both the risks and benefits of transfer of equity.
Agreeing equity value
When making this transfer, all parties involved must agree the value of the property, but any existing mortgage must be removed from this valuation to arrive at the value of the equity remaining in the property which can be transferred. All parties must also agree on these figures. No property can have more than four owners, but a number of parties may be involved in this process.
If there is limited equity, there is a chance that the property can be re-mortgaged if it has increased in value, or a new party takes on mortgage responsibilities.
When might you need to transfer equity?
There are a number of circumstances in which it may make sense to consider transfer of equity. Let’s take a look at some of them.
Around a third of marriages in the UK have ended in divorce since the mid-1960s. Given the number of privately owned homes in the UK, this means that divorce is a major trigger when it comes to transfer of equity. It is one of the assets which cannot be physically divided and so it will need to be addressed in a unique way.
This involves looking at the ownership of the property and you can find information online when looking for a transfer of equity solicitor.
The reverse of this situation can also arise when a homeowner marries and wishes to add a new partner to the title deed. Once again, a transfer of equity will be needed. If a mortgage is still in place on the property, you will without doubt need the consent of the lender.
Other issues to consider
Another issue to consider is that of Stamp Duty Land Tax when a transfer of equity takes place. When a property still has a mortgage attached, if it is transferred into joint names with, for example, a 50% transfer of equity, the transferee is responsible for half the mortgage. This is seen as a chargeable consideration, even though no cash has changed hands. Your legal advisor will explain whether any liability attaches in this case.
Parents often look to transfer equity to children as more people become concerned about how they will fund any care they need in old age and balance this with their desire to leave assets to their children. It is important to understand that this could attract capital gains tax. Again, seek advice from your solicitor as to how this might be mitigated.