Transfer of equity remortgage and stamp duty liability
by Daniela Litsova — Posted on 26 July, 2017
Conveyancing issues relating to a transfer of equity, remortgage and whether stamp duty is payable
UPDATE: Since writing this blog there has been a recent change in legislation which reduces stamp duty liability when property is transferred between spouses (transfer of equity). These new rules in the SDLT guidelines state that the higher rates will not apply for transfer of equity between spouses after the 22nd of November. Read more about the update by clicking on our blog Transfer of property to your spouse.
Transfer of equity
Equity is the value of the property after repayment of any outstanding loan. A transfer of equity just means a change in legal ownership of a property. It will often take place where a borrower is added to or released from a mortgage. A transfer of equity can often occur as a result of a breakdown between spouses or partners where the joint names need to be transferred to the sole name of the person who will remain at the property- this is known as a 2:1 transfer. Likewise, one legal owner transferring to two is known as a 1:2 transfer.
The formalities of transferring equity vary depending on the type of transfer taking place. Most involve a document known as a Transfer Deed being signed and witnessed by both parties to the transaction.
If the property is also subject to a mortgage then the person transferring ownership will have to be released. The Mortgage Lender is a party to the transfer of equity and must therefore give its consent to this before releasing the former owner from the mortgage. The Lender may consider the credit status of applicants, previous track record of payments and will attempt to identify any potential problems in relation to future payments. The lender may refuse to give its consent if the person to whom the property is being transferred cannot demonstrate that he can afford contractual payments. Instead, the other former joint owner may remain liable on the mortgage after the transfer.
Remortgage to a new lender
Alternatively, you can arrange a new mortgage with a different lender combined with the transfer of equity- a transfer. Remortgaging could be the better solution because it can allow for a more preferential interest rate and the possibility to raise additional capital.
Once the amount to be paid under the transfer is agreed between the parties and approval has been received from the existing lender or from a new mortgage provider and the Transfer Deed has been signed and witnessed then the transaction is complete.
Starck Uberoi can act for your lender as we are on the panel of all the major high street lenders including Woolwich, HSBC, Santander, Halifax and Nationwide. Click here for a full list of our lender panel.
Is Stamp Duty payable when completing a transfer of equity?
You may need to pay Stamp Duty Land Tax (SDLT) when all or part of an interest in land or property is transferred to you and you give anything of monetary value in exchange.
Anything of monetary value that you give in exchange is called the chargeable consideration.
The rules you use to work out how much SDLT you pay depend on the circumstances of the property transfer.
You might pay SDLT when you transfer a share in a property to a husband, wife or partner when you do one of the following:
- enter into a civil partnership
- move in together
You pay SDLT if the consideration given in exchange for the share transfer is more than the current SDLT threshold for the property type.
When property is transferred to a company, SDLT may be payable on its market value, not the consideration given. For example, if a property has a market value of £200,000 but the company only pays a consideration of £100,000, SDLT will still be payable on £200,000.
You might also have to pay SDLT even when no money changes hands
Take the following example: the owner of a property valued at £500,000 with an outstanding mortgage of £400,000 transfers half the property to their partner when they marry. Their partner takes on 50% of the mortgage (£200,000).
HMRC charge SDLT on the amount paid for a property.
By taking liability for the mortgage, the owner’s partner has given consideration of £200,000 (50% of £400,000) for their share of the property which is £1,500 SDLT (0% of £125,000 + 2% of £75,000).
They must pay SDLT on that amount and tell HMRC about the transfer by filling in an SDLT return.
For more information, the GOV.uk guidance for Stamp Duty Land Tax: transfer ownership of land or property. We are based in Ealing, our office is located 10 minutes from Ealing Broadway Station.