Transfer of equity: The advantages and risks
There are a number of different ways you can explore if you wish to transfer the equity in your home to family members. Each of these come with their own benefits and drawbacks including tax implications, which will be explored below.
Transferring ownership to a spouse or civil partner
If you are newly married and want your spouse to appear on your title deeds, you can do this by way of a transfer of equity. In this transaction, a share of the equity in the property is passed to one or more people, but the original owner remains on the deeds.
This transaction will need to be completed with the help of a conveyancing solicitor, who will deal with the legal requirements including Land Registry forms. A conveyancing solicitor will also be able to advise you on the best way to complete the transfer.
If there is still a mortgage on the property, you will need to inform your mortgage lender, who will ensure that the mortgage repayments will still be able to be made.
The person taking on the equity will need to pay stamp duty if the equity and mortgage exceeds the stamp duty threshold. The stamp duty threshold is currently £125,000. Tax will need to be paid on any of the equity transferred, which is over this threshold amount.
Transferring equity following a divorce
If a couple has taken the difficult decision to end their marriage or civil partnership, stamp duty will not need to be paid if equity is being transferred.
Capital gains tax on the other hand is a little more complicated. CGT will not need to be paid if you have lived with your now former spouse in the tax year during which you transferred the asset. If this is not the case, a valuation will need to happen in order that the CGT liabilities can be calculated.
Transferring property to children
If you want to give your children a leg up on the property ladder or try to reduce inheritance tax liabilities, it is possible to transfer equity in your property to them.
There can be pitfalls in this, especially if any equity release schemes have been used in your property.
As with equity transfer to a spouse, stamp duty will be payable if the equity transferred is valued at more than £125,000 – the current stamp duty threshold.
As ever consulting a reputable conveyancing solicitor to discuss your own unique circumstances is advised before making any plans. Transferring equity can be a complex procedure, especially when large amounts of equity are concerned, with stamp duty and capital gains tax coming into play.