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Residential Conveyancing

Equity Transfer: Sharing The Value Tied Up In Your Home

Discover how equity transfer can help you. Learn about the process, your rights, the tax implications, leasehold property rules, and equity release.

Equity Transfer: Sharing The Value Tied Up In Your Home

What Is Equity Transfer? What Does It Mean For Homeowners?

A transfer of equity in a residential property refers to the process of changing the legal ownership – or the shares of ownership – without an actual sale of the property itself. You can still live in the property but you will need the correct legal documentation.

Why Transfer Equity In A Residential Property?

Equity transfer can be required for a number of reasons. It’s done typically when there is a change in the co-owners or their respective shares in the property.

One common scenario is when one or more individuals want to be added or removed as owners of the property. Equity transfers are commonly used in divorce settlements. This can be done to buy out one party, to remove a party’s name from the title, or to change ownership shares as part of a financial settlement.

Another scenario involves individuals deciding to change their respective shares in the property. This could be due to various reasons, such as financial arrangements or changes in the contributions of the co-owners. Perhaps there was a cohabitation agreement or a pre-nuptial agreement.

Or maybe the property was purchased with a loan from the ‘Bank of Mum and Dad’ and they want to make the arrangement more formal. This is a good idea from their point of view in case their child’s marriage/relationship breaks down and one party moves out. It can avoid complex and unseemly wrangles over whether Mum and Dad’s contribution to the property purchase was a gift or merely a loan. And it’s also worth getting some expert legal advice on the possible Inheritance Tax implications.

Transfer of equity can also occur when one co-owner gifts or sells their share of the property to another co-owner or a third party. Gifting is a means of minimising Inheritance Tax liability. Under Potentially Exempt Transfer (PET) rules, gifts usually fall outside the estate for IHT purposes if the donor lives for a further seven years afterwards and does not make further significant gifts to the same person(s).

Mortgage or financing arrangements are a common reason for transfers of equity. Unless you've won the lottery or bought Bitcoin back in 2010, you will probably have needed a mortgage to buy your home. Where a property is subject to a mortgage, a transfer of equity can be initiated when:

  • one co-owner takes on the responsibility of the mortgage
  • a co-owner’s financial situation changes.

Equity can also be transferred as a means of settling a dispute. If large sums are involved and the person needing to pay is ‘house rich cash poor’ they may choose to (or be legally compelled to) give up a share in their property as an alternative way of resolving the disagreement.

How Do I Transfer Equity?

The process of transferring equity involves legal and financial transactions. These include the preparation and execution of legal documents such as a Transfer Deed, which formally conveys ownership rights.

Additionally, a new mortgage or financial arrangement may be put in place. Stamp Duty Land Tax (SDLT) may also be applicable, depending on the specifics of the transfer.

It is essential to engage a solicitor with expertise in residential conveyancing to navigate the legal aspects of equity transfer because it can be a complex process involving multiple parties and legal considerations.

Your solicitor will ensure that all necessary legal steps are taken – and that the Land Registry is updated to reflect the new ownership structure. This helps to:

  • safeguard the rights and interests of everyone involved
  • ensure legal compliance.

Is Equity Transfer Available For Leaseholders As Well As Freeholders?

Equity transfer can be applicable to both freehold and leasehold properties. The key difference lies in the nature of ownership and the rights associated with each:

  • In a freehold property, the freeholder owns both the property and the land it sits on outright. Equity transfers can involve changing the co-ownership or ownership shares in freehold properties.
  • In a leasehold property, the owner holds a lease from the freeholder (the landlord) for a specified period. Leaseholders have a right to occupy the property for the duration of the lease. Equity transfers for leasehold properties often involve changing the ownership shares or adding/removing co-owners, similar to freehold properties.

When leaseholders transfer equity, the key consideration is usually the lease terms, as leasehold properties come with specific lease agreements that may include restrictions or requirements related to property transfers.

It’s important to review the terms of the lease and – in some cases – to obtain the landlord’s consent, depending on the lease provisions. Furthermore, there may be considerations related to service charges, ground rent and other leasehold obligations. So it’s wise to get expert advice from a specialist leasehold solicitor.

Can Someone Who Has Transferred Equity Still Live In The Property?

Yes, they can – even if they’ve transferred a majority share of the property. That’s because the right to live in a property is not necessarily tied to the ownership share. It’s worth noting that if you give away some or all of your home and continue to live it, the full open market of the original share of the property will still remain in your estate for IHT purposes – regardless of how many years pass.

However, the specifics of the arrangement – as well as the legal and financial agreements made during the equity transfer – can vary and may impact the individual’s right to occupy the property.

Here are some common scenarios to consider…

Majority Share Transfer – if someone transfers a majority share of the property to another co-owner, the majority owner (the transferee) typically gains more control over the property’s decision-making and may have the right to occupy the property. However, the rights and responsibilities associated with property occupancy and management should be defined through legal agreements, such as a Declaration of Trust or a cohabitation agreement.

Tenancy Agreements – in some cases, when a person transfers equity but wishes to continue living in the property, they may enter into a tenancy agreement with the new majority owner(s). This agreement can outline the terms of occupancy, including rent and other responsibilities.

Occupancy Rights – the specific rights to occupy the property should be established in the legal documents associated with the equity transfer. These rights can vary based on the agreement reached between the co-owners and the legal advice received.

Shared Ownership – if the equity transfer is part of a shared ownership scheme, the transferor may retain the right to live in the property while holding a reduced share of ownership.

It’s essential to have a clear and legally binding agreement in place when transferring equity in a property, especially when significant changes in ownership occur. This agreement should specify the rights and responsibilities of everyone involved. Think about who will be living at the property, who will be responsible for maintenance, and who pays for what.

What’s The Difference Between Equity Transfer And Equity Release?

Equity transfer and equity release are two different financial arrangements related to property ownership. They serve different purposes.

Equity Transfer (as you’ve already read) involves changing the ownership structure of a property, often by adding or removing co-owners or altering their ownership shares. It is typically done for reasons such as divorce, separation, income tax planning, gifting or estate planning.

In an equity transfer, the property’s ownership remains within the family or the existing co-owners, and the transfer is primarily a reshuffling of ownership shares.

Equity release, on the other hand, is a financial arrangement that allows homeowners (typically retirees aged 55 or older) to release some of the equity tied up in their property. They can borrow a lump sum or regular income while continuing to live in their home. Equity release is often used to supplement retirement income or cover specific expenses.

In an equity release, the ownership of the property remains unchanged. The property owner retains ownership rights and can continue to live in the property.

Equity release products are essentially loans secured against the value of the property by way of a mortgage which does not normally require monthly repayments. Over time, the debt (including interest) can accumulate – potentially reducing the inheritance that will be left for beneficiaries.

It is essential to seek expert legal advice before entering into an equity release arrangement. We are affiliated to the Equity Release Council and can provide objective legal advice and assistance if you are interested in exploring the equity release options.

Further Questions About Equity Transfer

Q: How is Stamp Duty Land Tax (SDLT) calculated on an equity transfer?
A: SDLT is typically calculated based on the market value of the equity being transferred. If the transfer includes consideration, this is also taken into account.

Q: Do I need a solicitor for an equity transfer?
A: It is highly advisable to involve a solicitor that specialises in residential conveyancing. They can guide you through the process, ensure that the legal requirements are met, and help with documentation.

Q: Are there tax implications for equity transfers?
A: Yes, you may have to pay tax – including the aforementioned SDLT – depending on the specifics of the transfer. In some cases, there could also be an Inheritance Tax liability. In addition to getting expert legal advice, you may also need to consult your IFA and/or accountant.

There is also an additional legal requirement…

If the legal owners shown on the title registers at the Land Registry are no longer the only people entitled to a share of the future sale proceeds, it is now compulsory to register these arrangements with the Trust Registration Service [TRS].

Q: What happens to the mortgage during an equity transfer?
A: If the property is subject to a mortgage, the lender’s consent will be required for the equity transfer. The new owner will need to meet the lender’s eligibility criteria. Failing that, the new owner may have to refinance the mortgage.

Q: Are there any exemptions or reliefs for equity transfers?
A: Yes, certain exemptions and reliefs may apply in specific situations, such as transfers between spouses or civil partners. There may also be reliefs available for certain property transactions. Eligibility depends on the circumstances and should be discussed with a solicitor and/or tax adviser.

Q: Can I gift my share of equity to a family member without tax consequences?
A: Gifting equity in a property is not usually subject to SDLT, but it’s essential to ensure that it’s a genuine gift without any consideration involved. Consult your solicitor to ensure the transfer is done correctly.

There may additionally be an immediate charge to Capital Gains Tax if you are giving property to someone other than your spouse or civil partner because – in some circumstances – the donor will be taxed as if they had received the full open market value of the property given away.

Q: How long does an equity transfer take?
A: It can vary, depending on factors such as the complexity of the transfer and the cooperation of all parties involved. On average, it may take several weeks to complete.

Get Expert Advice On Equity Transfer

It is always important to get specialist legal and accountancy advice when considering equity transfer.

For expert legal advice, contact:

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