Transfers of Equity and Legal Ownership of a Property

A transfer of equity is a transaction where legal ownership of a property changes hands but at least one of the original owners remains on the title. For example where a couple transfer it into the sole name of one or other of them or a person is added to the title.

It is generally much more straightforward than a sale or purchase as usually there will be no searches or enquiries, since the parties involved will have prior knowledge of the property, so there is no need for a contract.

FreeConveyancingAdvice.co.uk do a handy Transfer of Equity Kit which can help guide you through the process.

The Transfer of Ownership Process

The form to be used is land registry form TR1. The current owner(s) will be the transferor(s) and the new owner(s) will be the transferee(s). The first step is to obtain official copies of the title. It is necessary to check whether there are any mortgages on the property or whether there are any restrictions that will need to be complied with.

If there are no mortgages then all parties simply need to sign the transfer deed and register it with the land registry. The application should be made using land registry form AP1 and should be accompanied with the transfer deed and, for any party not represented by a conveyancer, land registry form ID1. If the value of the transaction is greater than £40,000 then a stamp duty certificate in form SDLT5 (see below) will also be required.

If there is a mortgage on the property then this will either need to be repaid or else the lender’s consent will need to be obtained. Read on for details.

Where There is a Mortgage to Repay

If there is a mortgage on the property which is to be repaid as part of the transaction, whether using money supplied by an incoming owner or via a remortgage, then it will need to be repaid on or before completion and a discharge document in for DS1 will need to be obtained from the lender. This will need to be submitted to the land registry with the AP1 application. A redemption statement, calculated to the day of completion, will need to be obtained prior to completion to ensure the correct amount is paid. If the mortgage is not redeemed in full the lender will not release the DS1 and the transfer will not be able to be registered.

Where an Existing Mortgage Will Remain

Sometimes the parties will want the existing mortgage to remain. If this is the case then the consent of the mortgage lender will need to be obtained before the transaction can proceed. Where someone is being added to the title they will need to become equally liable, along with the other joint owners, for the mortgage. They would do this via a covenant entered into the transfer deed. The lender will usually want to perform credit rating checks against the new owner.

The lender can give its consent to the transfer either in a separate letter or by signing the transfer deed along with the other owners. Where there is no restriction on the title preventing a transfer from being registered without the lender’s consent and the consent is not obtained, the new owner’s rights in the property will still rank behind those of the lender.

If someone is being removed from the title the lender will again need to agree. The outgoing owner must be released from his obligations under the mortgage. This is usually done via a clause in the transfer deed, which the lender will sign along with the other parties. The lender will want to check that the remaining owner is financially capable of keeping up with the mortgage payments.

Where a New Mortgage is Being Obtained

If a new mortgage is being obtained, it will need to include all the names of the people who will be joint owners of the property following completion. Although most lenders won’t require searches to be carried out, they will usually require that “no search indemnity insurance” is obtained. This is an insurance policy that covers them for any loss they suffer as a result of something that would have been revealed by the usual conveyancing searches had they been carried out. It will cost perhaps £50 or so (though it depends on the amount of the mortgage) and will need to be paid for by the borrowers. Some lenders have a block policy which covers all their remortgages, in which case an individual policy won’t be needed.

2 to 1 Transfers Where Property is Held as Tenants in Common

Where a property is owned by two or more people as tenants in common and there is a transfer of equity which leaves one remaining owner, and no money is paid by the remaining owner to the outgoing owners, the form A restriction (which prevents a transfer by a sole proprietor from being registered) will need to be removed. This can be done by the remaining owner signing a “Statutory Declaration as to Equitable Title”. This is a declaration to confirm that he is solely entitled to the equity in the property. If this is not done now it can be done when the property is sold on.

Transfers to Avoid Creditors

One reason for a person completing a transfer of equity is to prevent his creditors from being able to claim some or all of the equity in the property in the event he becomes bankrupt. The trustee in bankruptcy however has powers to set aside; that reverse transfers that were for less than the market value of the property (or the share). He can doe this in respect of any transfer that has been carried out within the last 5 years. Once the transfer is set aside the trustee will be entitled to the equity in the property on behalf of the creditors.

Declarations of Trust

It is important, when adding someone to the title of a property, to think about exactly what interest you want that person to have, and indeed for the incoming owning to think about what interest he wants to receive.

You need to think about what should happen if one of you dies, should it pass automatically to the survivor or via your will? If your relationship breaks down, how much of the equity should each party be entitled to? Who should make the mortgage payments? All of these things should be put in writing. This may seem a little unromantic at the time but could save a lot of money and legal battles, not to mention a lot of acrimony, in the future. It is possible to vary the terms of your agreement in future if your circumstances change. You should also be aware that by taking certain actions a variation might be implied even if it is not put in writing.

Stamp Duty Land Tax

If the value of the transaction is greater than the minimum threshold for paying stamp duty (£125,000 at the time of writing) and if no relief or exemptions apply, then stamp duty will be payable. If the value is under the threshold but greater than £40,000 then no duty will be payable be a return will still need to be submitted and a certificate in form SDLT5 will need to be obtained and included in the application for registration.

The value is based on any amount paid by an incoming owner or to an outgoing owner as well as any amount outstanding on an existing mortgage or borrowed on a new mortgage. Where someone is coming off the title, the formula is as follows: ((amount paid to outgoing owner / number of remaining owners) + ((amount outstanding on mortgage / number of original owners * number of outgoing owners))) = value. For example if the transfer is from 2 to 1 and the outgoing owner receives £50,000 for his share, and there is also a mortgage under which £40,000 is owing at completion then the value will be ((50,000 / 1) + ((40,000 / 2) * 1))) = 70,000.

If someone is being added to the title, the following formula should be used: (amount paid by incoming owner + (amount outstanding on mortgage / number of joint owners after completion)).

As an example, if the property is transferred from 2 people to 3 and the incoming owner pays £25,000 for his share, and there is a mortgage with £30,000 owing, then the value will be (25000 + (30000 / 3)) = 35000.

There are other factors which could affect stamp duty liability and you should seek the advice of a solicitor.

Inheritance & Capital Gains Tax

Inheritance tax and capital gains tax are outside the scope of this article however if you think the transaction may have tax implications you should speak to an accountant or tax specialist.

Do have a look at FreeConveyancingAdvice.co.uk’s Transfer of Equity Kit and the other DIY Conveyancing Guides they offer as they may help with explaining the subject further.


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29 Responses to “Transfers of Equity and Legal Ownership of a Property”

  1. What a good informative article. It is not an easy subject to understand but your article is most helpful.

  2. This is such a great post. Thank you.

  3. […] will still get their money each month – which it sounds like they will be fine with!) This link Transfers of Equity and Legal Ownership of a Property along with the land registry link that a pp gave you should explain more. But best advice would […]

  4. A good article which I think covers all the bases. I’m thinking of doing Equity Transfer thing so I will bookmark the site for future reference.

  5. Well written and expands nicely on an article written by Shamin Kashem of HPLP Solicitors on my own site on this very subject.

    Want to write for me??

  6. The link to “land registry form ID1” is incorrect.

  7. Thankyou Nick, you are correct. Well spotted and thanks for letting us know.

    The link to land registry form ID1 is now updated !!!

  8. Heya
    Your article Transfers of Equity and Legal Ownership of a Property is helpful as well as well thought out, I will come often in order to read through the articles!

  9. My ex is buying me out. House is valued at £310k, I am receiving £30k for my share.
    There is outstanding £195500 on mortgage (ex is re-mortgaging).
    Am I right that he will be liable for stamp duty?
    (30,000 + 97,750 = 127,750) and therefore over £125k threshold? Or have I got that wrong?

  10. help i am in a shared ownership property 75% rent 25% mortgage
    my ex left over 12 years ago i have no contact with them and do not know where they live there name is still on the mortgage and housing ass rented from i want to get them off the property so i can pay mortgage off if i do not take them off then they can claim 50% 0f the paid up mortgage
    they have not payed any rent or mortgage or even the deposit everything came out of my own bank account is there any law that lets me do this without them consenting as i do not know where they are or some other way to aproach this i am with a new partner and fear should i die there would be a legal mess left for them and the chance they could loose there home as well as loosing partner

  11. I wish to transfer my namenon my deeds to my niece and nephew. There is no mortgage on the property. Will it be possible to do this ourselves with all the necessary forms or do you suggest we do it through a solicitor.
    Kindest regards and many thanks

  12. Good day! I could have sworn I’ve been to this website before but after
    checking through some of the post I realized it’s new to me.
    Anyways, I’m definitely glad I found it and I’ll be bookmarking
    and checking back often!

  13. may gardner Says:

    Hi there, there is some wonderful imformation on this site, but there are some other things i need to know and hope you can help. In 2006 my father died and was soul owner of his and my mothers house, the mortgage was paid in full at the time of his death, my father had not made a will and everything went to probate. At the time of probate the house was given to my mother and was transferred into her name. when my mother made her will this was after my fathers death, the solicitor advised my mother to do a transfer of equity of the house and she transferred it into my brothers and my name, leaving us both as landlords and my mother as a tenant. It was stated that my mother could remain living in the house for as long as she wanted paying my brother and myself a pepper corn rent of a penny per year, and she was responsible for the bills while she lived there. If she left the house it was not to be sold for 6 months in case my mother decided she wanted to move back.4 years ago, my mother moved out and in to sheltered accommodation, the house is still unsold. Now the problem i have is this, my brother owns his own bungalow, and runs his own business which is failing and he is unable to pay his mortgage, my brother and i want to sell my mothers house, but we are not sure if the full amount of money from the house will belong to us or whether the money has to go into my mothers estate as i have been told that my what was my mothers house comes out of her estate in 3 years time. Can you please tell me which is right…..Thankyou

  14. Been Let Down Says:

    What the “specialist” is saying is that, if one borrower is able to get a mortgage in his/her own name, then the mortgage can be transferred to him/her. This is only an option if the borrower meets income, credit check and other requirements. But, if this is the case, the borrower may as well shop around and take out a “new” mortgage rather than just limiting options to whatever the current lender offers.

  15. If someone buys a timeshare from you sign all paper work needed but has not as yet signed the final transfer deed so that the names change from old owner to new owner can the person whom bought the time share be forced to sign the deeds

  16. Hi I would like to know if my husband
    is transferring house to me and it’s
    value is over £500.00. With no interest in it
    and no mortgage
    Will I need to pay stamp duty.
    Kind regards
    Pauline

  17. Hi, I entered into an agreement to purchase a property where I paid a 50% share and the next 50% over two years. The sale has been completed but now the seller is refusing to sign the tr1

  18. Private and Confidential : legal advice required re declarations of trust (2) lodged at Land Registry retrospectively to protect assets when bankrupt and post-bankruptcy – (registration over five years later first DoT; a year later (second current DoT) in favour of the bankrupt (now out of bankruptcy (sole director/shareholder – therefore sole beneficiary). Trustee in Bankruptcy could not prove anything. Any thoughts pls. This person still owes over million to his creditors.

  19. Could I transfer my property to my son without any stamp duty costs or inheritance tax. The property is worth £110 with no mortgage.
    Thanks

  20. great advice.
    I would think you would have to pay stamp as its a new owner of the prop

  21. Frederick Hartey Says:

    Question: If a husband who is sole owner wishes to become joint owner with his wife, is Stamp Duty payable?

  22. A mum, dad and daughter own a property, interest only which is due to expire. Remortgage to repayment in daughters name only (removing mum and dad from title), but with the parents still living in property. Can this be done.

  23. My ex partner is buying me out of our property through a transfer of equity. We having an existing mortgage. His brother is lending him the money to pay off the mortgage. There is an early redemption payment required by the mortgage lender as he is paying off the mortgage. Am I liable to pay half this figure?

  24. Laura Thornton Says:

    My brother and I have inherited a house for which I live in and wish to stay. I am in discussion with my brother with a view to buying him out which will include a deduction from his share of his 50% of the inheritance tax for which I will be responsible for paying, along with my own, on a stage payment basis.
    Is it easily possible to arrange a deed of transfer into my name so that I wholly own the property at the same time as as he receives my funds?

  25. My father has started to become unwell the house he lives in has been bought outright no Mortgage attached , my father wants to sign over the property to myself . How would we go about doing this ?

  26. My parents have a semi-commercial property worth approximately £1m. There house is roughly the same. They want to take a mortgage on the commercial to loan to me. I’m confused with how they can transfer the shop into my name. Is it better to transfer the equity to me and how much would the stamp duty be, or is it better to PET it to me? Would there be any costs?!

  27. I have just come off a morgage after a deed of separation and am ready to exchange on a new property but my name is still on the deed even thou I have no morgage on it and my solicitor won’t exchange till it’s off does that mean I have to be homeless because some one @ land registry won’t process it ,can anyone help Thanks

  28. Can a house be transfered to me, currently in both names as tenants in common, without any stamp duty costs or other taxes. The property is worth approx £130 with £100K mortgage.
    Thank you

  29. Is there anything extra to consider for leaseholds? I understand there’s something called “serving notice” on the freeholder. Is this covered in your Transfer of Equity Kit? Thanks.

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