A transfer of equity is used when you change the ownership of your property or the shares in which it is owned, without the property being sold.
These are commonly used during major life events, such as marriage, separation, inheritance planning and changes in financial arrangements.
Whether you’re adding a new co-owner or removing one, you must understand how an equity transfer works before you make any changes to your home’s ownership.
Our Supervising Department Director, Erin Cronin, investigates.
Why are equity transfers needed for residential properties?
Residential homeowners may choose to transfer equity for many reasons, but one of the most common is due to a relationship breakdown.
Following a divorce or separation, one party may buy out the other’s share or ownership may be adjusted as part of a financial settlement.
Equity transfers are also used when couples marry or enter a civil partnership and wish to add their spouse to the property title.
For parents who have helped their child purchase a property, they may later want to formalise their contribution and protect their investment by transferring equity.
Equity transfers can also be used for inheritance and estate planning, including gifting part of a property to family members.
How do you transfer equity?
When you want to transfer equity, a solicitor will prepare a transfer deed to reflect the change in ownership and ensure it is properly executed.
If the property has a mortgage, the lender’s consent is required and they may want to assess the affordability and risk for any new or remaining owners.
Once these documents are complete, the change must be registered with HM Land and Registry so that the legal title is updated to the new ownership structure.
Depending on the circumstances, Stamp Duty Land Tax (SDLT) may also be payable, particularly where a mortgage is involved.
If the property is not your main residence or you are transferring equity to someone other than a spouse or civil partner, Capital Gains Tax can arise.
What are your rights after equity is transferred?
Transferring equity does not automatically remove your right to live in the property.
Occupation rights can be protected through legal agreements such as a declaration of trust, a cohabitation agreement or a tenancy agreement.
If you give away a share of your home but continue to live there, you may still have practical rights of occupation.
However, your legal control over decisions such as selling or remortgaging the house may be reduced.
Gifting equity can reduce the value of your estate, but continuing to live in the property without paying market rent may mean the gift is still treated as part of your estate.
How can we help?
Equity transfers are not straightforward and they often involve property law, tax considerations, mortgage requirements and estate planning concerns.
When considering transferring equity, you must seek the support of a solicitor so that your transfer is prepared compliantly to avoid any unexpected tax liabilities and protect your rights.
If you are intending to transfer equity and need legal representation or advice, please contact us today.
