What is a transfer of equity?

Transfer of equity in divorce

Transfer of equity refers to the process of transferring part or all of a property ownership from one person to another. It can be used for a variety of reasons, such as when a couple divorces and one partner wants to take over their ex-partner’s share of the home. On this page, we explain what is involved in a transfer of equity and provide some tips on how to make the transfer go as smoothly as possible.

What Is Equity?

In simple terms, equity is the portion of a property that you own outright. So, if your home is worth £700,000 and you have a mortgage of £550,000 outstanding, your equity would be £150,000. If one owner gives up their ownership, they are entitled to receive their percentage share of the equity (or whatever percentage the court orders).

What is a Transfer of Equity?

Transfer of equity refers to the legal process of removing or adding someone to the ownership of the property. There is no sale of the property and at least one of the original owners will stay the same. You might transfer equity for several reasons, including:

1. To add someone to the ownership, such as a new partner or family member
2. To remove someone from the ownership, such as an ex-partner in a divorce
3. To change the percentage shares owned by the joint owners of a property, for example, changing a 50-50 ownership into a 60-40 ownership
4. To buy out a co-owner’s share in the property
5. Tax efficiency when transferring equity to children or other family members as a gift

What Are the Steps Involved in a Transfer of Equity?

The first step is to instruct a solicitor to carry out the transfer. They will check that the property is owned by the people who want to make the change and whether there are any outstanding mortgages or other debts attached to the property.

If there is a mortgage, the lender will need to give their permission for the change in ownership. The lender will want to run credit checks to make sure that any new owner can afford the mortgage payments. If you are removing someone from the ownership, the lender will check whether the remaining owners can maintain the mortgage payment on their own.

You may also need to obtain a valuation to work out the value of the ownership share that is being transferred. This ensures the right amount of money changes hands or the value is taken into account in the financial settlement in a divorce. Sometimes estate agents are asked to provide a valuation and on some occasions a Chartered Surveyor is instructed.

Once the solicitor has everything they need, they will prepare the necessary legal documents and submit them to the Land Registry. The Land Registry will then update its records to reflect the new ownership arrangement. At this point, the new owners will be able to update their home insurance policy to reflect the new ownership situation. Bear in mind Stamp Duty may be payable.

What if the mortgage lender does not give consent?

The mortgage lender may want to change the mortgage conditions before consenting. If the lender does not consent to the transfer at all, then the only way to proceed is to repay the mortgage in full. You could then look into whether you borrow from another lender. Bear in mind your current lender may charge a redemption fee.

How long does a transfer of equity take?

If there is no mortgage then the transfer should happen fairly quickly. With a mortgage, the whole process can take several weeks to complete depending on your unique situation and how the bank responds. The transfer may also take longer if it is part of wider financial arrangements, such as a divorce that is being resolved by the court.

Does a transfer of equity have tax implications?

There may be tax implications depending on the reason for the transfer of equity. For example, if you are changing the ownership in accordance with a Financial Remedy Order on divorce and the property is the main home of both parties, it is likely to be exempt, from capital gains tax. However, if you are transferring ownership to an adult child, the transfer may be treated as a potentially exempt transfer for inheritance tax purposes.

You could also be charged stamp duty land tax in certain situations, for example, if you are buying out a joint owner’s share of the property. This will depend on your individual circumstances. You should seek professional advice to check whether there are any tax implications in your specific case.

How Osbornes Law can help?

Whatever the situation, a transfer of equity is a complex legal process and it is important to get expert advice from a solicitor before proceeding. We have helped clients transfer equity for a wide range of reasons, including gifting property, inheritance planning, transferring property between family members and as part of a divorce. We can advise you on the steps involved and help to ensure the process goes smoothly. Please get in touch with our property team for a friendly chat about your needs.

Lisa Pepper is a partner and specialist divorce lawyer. Lisa can advise you on reaching a financial settlement that meets the needs of you and your family and agreeing children arrangements. Lisa works closely with the property and private client departments at Osbornes. Lisa is ranked as a leading lawyer in Chambers UK, Legal 500, Tatler, Spears 500 and Chambers HNW. She is also one of only a small group of lawyers who are also ranked as leading mediators in the UK. 

To speak with Lisa or her team please call or complete the form below.