A Transfer of Equity is a lot more complex than you probably think!
Written by Amy Paterson | Residential Conveyancing team | 14 March 2025
As part of National Conveyancing Week, Amy Paterson an Associate Solicitor and Joint Team Leader of our Residential Conveyancing Team, would like to dispel the myth that the process of transferring property ownership is as simple as “just signing a Transfer Deed”.
There is a lot more to Transfers of Equity than people may realise and it’s important they are carried out properly to ensure parties are suitably advised and to avoid any issues arising in the future.
I like the quirkiness and intricacies of dealing with a transfer, as they incorporate elements of both a sale and purchase transaction and all have different considerations and requirements depending on the nature and circumstances of a transfer. We limit the number of transfers we deal with at any one time as they can be complex and may have strict deadlines to meet.
A property may be transferred for a variety of reasons; co-owners may be separating or divorcing, a new partner may want to be added to the title, or some owners may look to transfer equity to their children or family for tax purposes.
The importance of checking the title plan
It’s important to obtain a copy of the title plan for any type of transfer to check this accurately shows the full extent of the property being transferred. This will prevent any issues arising in the future where a separately registered parking space or garage has not been transferred with the property, and this doesn’t come to realisation until years down the line when the property is being sold.
Similarly, the property may be leasehold with a share of the freehold also being transferred. It’s important to check that any corresponding titles are being transferred. Third parties may need to be a party to a Transfer if a share of the freehold is being transferred and we will need to obtain identification for all parties signing a Transfer deed.
Restrictions on the Title
There may be restrictions registered against the title to deal with that either need to be removed or require a certificate to confirm that certain provisions have been complied with or do not apply. The certificate will need to be lodged with the application for registration and the Land Registry will not complete the application without this.
This could include a transfer to another party even where one of the parties are remaining on the title. Such restrictions are commonly found on leasehold titles or on freehold titles where there is a freehold management company that manages the estate, and the property is subject to an estate rent charge for example.
The incoming transferee may be required to enter into a Deed of Covenant with the Management Company confirming that they will comply with the provisions in the original Transfer and perform the covenants and conditions contained in the Transfer as if they were an original party to the deed.
Once this requirement has been satisfied, we will receive a Certificate of Compliance which will be submitted to the Land Registry with our application for registration. There is usually a fee for providing this. Sometimes, a Conveyancer can certify that the relevant provisions have been complied with.
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Management Company Requirements
We will have to ascertain what requirements a Management Company may have in relation to the Transfer including any notice fees payable, requirements for issuing a Certificate of Compliance in respect of any restrictions in the register and requirements for becoming a member of the Management Company.
We may need to apportion any service charge payments, serve notice of assignment and notice of charge on the Management Company, and we may need to prepare Deeds of Covenant to be approved and executed.
Form A Restriction
There may be other types of restrictions that will need to be dealt with as part of the transfer for example there may be a Form A restriction on the title if the property is held by the current owners as tenants in common rather than as joint tenants. This is an example of a Form A restriction which will be noted on the Proprietorship Register:
RESTRICTION: No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
The Land Registry will not automatically remove such a restriction when we register the Transfer. We will have to draft further Land Registry documents, otherwise known as an RX3 Form or RX4 Form depending on who is signing the same. An RX3 Form cancels the restriction and is usually signed by the person staying on the title and the RX4 Form withdraws the restriction and is usually signed by the person coming off the title. We will also need to prepare an accompanying ST5 Form (Statement of Truth) to submit to the Land Registry to explain what has happened to the beneficial interest protected by the restriction.
There’s a lot more to the Transfer of Equity process than you probably think!
Restrictive Covenants
If we are acting for a person being added to the title, we need to ensure that they are aware of any covenants and restrictions that affect the title that they will need to comply with from completion. It provides a good opportunity to remind the current owner of such restrictions particularly if they are borrowing additional money from the lender at the same time as transferring the property to complete renovations or add an extension for example. There may be restrictions against any alterations or additions to the original design or elevation of the property without the prior approval of a named person/company. It’s important to note that any covenant consent required would need to be in writing and in addition to any necessary planning permission or building regulation approval.
Land Registry Identification Requirements
When submitting our application to the Land Registry we must confirm that either the parties are represented by a solicitor or that appropriate steps have been taken to verify their identification. Obtaining identification can be problematic and ID1 forms are commonly used in transfers of equity when the other party is not represented by a solicitor. These forms are valid for three months so it’s important the application is submitted to the Land Registry within this timeframe.
Lender Requirements
When the property is being transferred subject to an existing mortgage, we will need to consider the lender’s requirements and ensure the lender’s consent has been obtained to transfer the property. We will review the mortgage offer, advise our clients on the mortgage conditions and arrange for a mortgage deed to be signed.
Lenders have vastly different requirements. Some will stipulate that they need to be a party to the Transfer and may have specific clauses that need to be added to the deed. In that case, we will need to arrange for all parties to sign the deed and send to the lender to sign and return before we can complete the Transfer.
Some lenders will redeem the existing mortgage internally once you advise them of the completion date whereas some will require you to request funds for the new mortgage and redeem the existing mortgage even though the lender is the same and there is no additional borrowing. Some lenders will require a new mortgage deed to be signed whereas some do not.
If there is a Help To Buy Equity Charge secured against the property, Homes and Communities Agency (HCA) will require the parties to enter into a formal Deed of Release releasing an outgoing party from their obligations under the equity mortgage. The person staying on the title will covenant with the Lender that they will remain liable for the whole amount under the Equity Mortgage Deed.
HCA will require a Deed of Postponement to be entered into if the party staying on the title is remortgaging the property with a new lender as part of the Transfer process.
Joint Ownership
We will need to state in the Transfer whether the co-owners will be holding the property as joint tenants or as tenants in common.
If the property is owned as joint tenants both own the whole of the property so that, should one of them die, the property will pass automatically to the survivor. This is called the Rule of Survivorship.
If the property is owned as tenants in common, each owner is seen to have a separate share in the value of the property. These shares will need to be declared. When property is owned in this way and one of the owners dies, his or her share does not automatically become the property of the surviving owner, but will form part of the deceased owner’s estate, to be dealt with under the terms of their will or the rules of intestacy. If a property is owned in this way, it is essential that each owner makes a will to ensure that their share in the property goes to the intended recipient.
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Declaration of Trust
It is not unusual for couples or other co-owners to make unequal contributions towards the purchase price or acquisition of a property, even where both will be contributing equally to the mortgage repayments.
It is important to consider whether a Declaration of Trust may be appropriate based on the individual circumstances. A party may be added to the title to assist the current owner in removing someone else from the title for example and it’s important the beneficial interests are clearly recorded.
A Declaration of Trust is a legal document that can be prepared to help protect all persons involved, particularly when there are unequal contributions to the property. It gives all people involved a clear legal document recording how the property is owned and can avoid difficulties with ownership and contributions in future.
Stamp Duty Land Tax
Careful consideration is required to ascertain whether stamp duty land tax (SDLT) needs to be paid in a transfer of equity even where no money is changing hands. When no money is being paid to the outgoing party in a Transfer, SDLT may still be payable where there is a mortgage on the property. The consideration for SDLT purposes is based on half of the amount of the existing mortgage, as the other party is essentially taking on half of the debt by releasing the other party.
We will need to consider the individual circumstances of the person staying on the title and any person being added to the title and ascertain whether they own any other properties which may result in the higher stamp duty rate being applied.
Even where no SDLT is payable, we may still need to notify HMRC and submit a return where the consideration is more than £40,000.00.
Source of Funds
If consideration is being paid for transferring the property or the mortgage is being repaid without refinancing as part of the transfer process, we will carry out source of funds checks as we would in a property purchase. We will need documentation to evidence the origin of funds and how any funds have been accumulated. If monies are being gifted, we will need to carry out further due diligence in respect of any giftor.
If a gift is being provided from a third party, we will need to write to them directly to obtain identification. We will also need to see how the third party acquired the funds, and we will ask for bank statements and any other supporting documentation required.
We will also ask the giftor to sign a Gifted Deposit Declaration to confirm the giftor will have no interest in the property, they will not be living in the property and the gift is non-refundable. We may also need to report the gift to a lender depending on the lender’s individual requirements and will carry out a bankruptcy search against any giftor.
Gifting a property to children
We need to understand the circumstances surrounding the transfer and why the parties wish to transfer the property. Some parties may wish to transfer a property to their children for tax purposes but intend to still live in the property. In this instance, we need to ensure that they are fully aware of the risks with proceeding with a transfer in this way.
They will no longer have any control over their property.
They would be reliant on their children for accommodation needs and if they fall out in the future, their children will have the power to evict them.
If they proceed to gift their home and then require state funded care, they could be treated as still owning the asset if the Local Authority consider that they have intentionally deprived themselves of the asset.
Should their children divorce their spouses, the property would be an asset that would be considered when coming to any sort of financial settlement. This would also apply if they were to face bankruptcy proceedings.
There are also implications relating to tax. Whilst we are unable to give tax advice, we encourage clients to obtain further advice regarding the following:
Inheritance Tax – If they are still living in the property and not paying market rent, this transfer would be treated as a Gift with Reservation of Benefit and therefore the full value of the property would still be in their estate. They may also loose the valuable relief of the Residence Nil Rate Band. Transferring the property may not save Inheritance Tax and could potentially make it worse. We would encourage our clients to seek advice from our private client team in this regard.
Their children would lose the benefit of First-Time Buyers’ relief for SDLT should they not own any properties and buy in the future, or they may have to pay the higher rate of stamp duty if they had owned a property previously.
When the property is sold in the future, their children would potentially have a Capital Gains Tax liability if not living in the property themselves.
Upon consideration of the above factors, some clients may not decide to proceed with the Transfer in this way.
Acting for the Outgoing Party
When acting for a party being removed from a title, we would review the title documents in conjunction with the draft Transfer to ensure this has been correctly drafted and that any specific clauses required are added to the deed. For example, we may require an indemnity clause to be added to the Transfer releasing the outgoing party from covenants affecting the title and indemnifying them from any breach of the same.
When the property is being transferred subject to the existing mortgage, we will want to ensure the outgoing party is released from any obligations under the loan.
Some lenders wish to be a party to the Transfer deed and a clause can be added to the Transfer confirming that the lender releases the outgoing party and their estate from the observance and performance of the covenants on their part contained in the mortgage.
Where the lender is not a party to the Transfer deed usually, they will include a clause in the mortgage offer stipulating that any party not remaining on the title is released from their obligations under the mortgage. We will want to see a copy of the mortgage offer to check this.
If the current mortgage is being repaid, we will require an undertaking from the solicitor acting in the transfer confirming that they will redeem the mortgage in full on completion to ensure our client does not have ongoing liability. We will also require an undertaking to provide an updated copy of the register once the Land Registry have completed the application for registration.
Land Registry Searches
In a transfer we need to ensure that bankruptcy searches are carried out against the outgoing party and a clause is added to the Transfer deed confirming that they are not insolvent nor will become insolvent in consequence of the Transfer.
We will also carry out a Land Registry search against the title prior to completion. This affords our client and their lender a priority period in which to submit our application to the Land Registry. This search prevents any other registrations against the title during a specific period.
Updating the Land Registry Title and Address for Service
We may need to remove any Matrimonial Home Rights Notices from the title or any erroneous restrictions that are no longer required and we may spot errors in the title that need to be rectified. We may update our client’s name as part of the transfer process and additional documents may be required to evidence a change of name.
We will also check the address for service is up to date. This address will appear in the Property Register. If the Land Registry needs to write to an owner, they will write to them at their address for service shown in the Register. They will also use this address if they need to issue any formal notice to an owner as a result of an application being made. Notices are often sent as a safeguard against fraud so it is important that the address is correct and up to date.
Court Orders
A transfer may be made pursuant to a Court Order if the parties are separated or divorced. If that is the case, we need to ensure that any deadlines stipulated in the Order are met as otherwise interest may be payable and ultimately either party can be taken back to Court if the Order is not complied with.
How we can help you
Transferring equity can be complex, and whilst parties can carry this out themselves if there is no mortgage secured against the title and identification checks are conducted, there are many implications and matters that need to be considered as part of a transfer.
The transferring of a property can be the last step in a divorce or breakdown of a relationship and we fully appreciate that emotions may be high, and that parties wish the transfer to be completed as seamlessly as possible to end what can be a difficult process. We endeavour to make the process as simple and stress free as possible.
Our Conveyancing Team can assist in any type of Transfer of Equity. Please call the team on 01752 827050 or email us at conveyancing@nash.co.uk. should you require any assistance.
We strongly advise parties to obtain legal, financial and tax advice before transferring their interest in a property. However, if parties wish to conduct the conveyancing themselves, and require assistance in completing an ID1 Form, this is also something which we can assist with.
Please note that the Conveyancing Team can act in a Transfer of Equity only once an Agreement has been reached regarding the amount being paid to an outgoing party. If you require advice regarding a separation, the dissolution of a civil partnership or your finances, our Family Team will be able to assist in the first instance.
Alternatively, if you are involved in a property dispute, our Dispute Resolution Team will be able to assist. Please call us on 01752 664444 or email us at enquiries@nash.co.uk and we can direct you to the appropriate department.
