The transfer of property it is legally known as a transfer of equity. This is different to the sale of a property where the entire ownership in relation to the property is changed. With a transfer of equity, at least one of the current owners remains on the title and one or more other parties are added or removed.
Conveyancing is the area of law that relates to the buying and selling of property. The two main aspects of conveyancing are:
Equity is the term that is used to described the percentage of the property that you own. It is the value of the property minus any liabilities, for example, outstanding mortgages.
A transfer of equity is the legal process to add or remove a person from the title deeds of the property. This process does not involve a sale and at least one of the original owners stays the same. There can be various reasons that this happens:
Where the parties are all in agreement it is a relatively simple process. The transferor is all the original owners and they will transfer the property to the transferee. In order to perform a transfer of equity, the current owners will need the official title for the property that will details and restrictions or mortgages in relation to the property. HM Land Registry has to be notified where the registered owners of a property are changed. This is done by completing the relevant form depending on whether the whole or part of the registered title is transferred.
If property is being transferred to a child under the age of 18 then it will be necessary to set up a trust deed that will appoint a trustee to hold the property for them until they are 18 years old and then the equity would be transferred to the child.
If the property has an outstanding mortgage, the lender will need to give their consent before the transfer of equity occurs. This is because the owners that remain at the end of the transfer (or are added) will all be equally liable for the mortgage and any owner being removed from the deeds will be released from all liabilities. The mortgage provider will want to run checks to ensure that the owners will be able to maintain the mortgage payments before they agree to the transfer.
It may be that the owners want to transfer the property and keep their existing mortgage or they may wish to move to a different mortgage provider. Where the mortgage provider does not agree to the transfer then the owns will need to repay the mortgage before the transfer can happen- either by paying it off in full or remortgaging with a different provider to cover the outstanding amount.
Where the transfer of equity is a gift without any form of payment (known as consideration) then stamp duty land tax will not normally apply. However, where there is a mortgage and joint owners decide that ownership is passing to just one of them, then the mortgage will also be the sole responsibility of this person. Stamp duty is owed on the total chargeable consideration if it exceeds the threshold on one or both of the following:
There are various situations where stamp duty will not be owed, for example:
Any transfer between a spouse or civil partner will not incur capital gains tax. Transfers to a charity are also exempt. However, any other transfer (including to your own children) is subject to capital gains tax. Any amount below the threshold (currently £12,300) is exempt, but there is then a charge of either 18% or 28% depending on whether you are a basic or higher rate taxpayer you are and the value of the transfer.
A spouse can pass a home to their husband or wife and there is no inheritance tax due. Where you leave your home to other people, then there can be inheritance tax implications depending on who you leave it to and the value of your estate. The threshold is currently £325,000 but increases to £500,000 where the home is left to children and this also applies where the estate is worth more than £2 million.
If you live for another seven years after passing on your home to someone else, then there is usually no inheritance tax to pay. If you die within the seven-year period, then it is regarded as a gift and inheritance tax will be charged at 40% on gift within the three years before you die and then there is tapered relief between three to seven years.
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