There are many reasons a homeowner may choose to transfer equity in their property to another party. When transferring equity, you are either transferring some of the equity to someone else or transferring it from a second party to you.
Some of the most common reasons people carry out a transfer of equity include adding a partner or new spouse to the title deed of the property, removing an ex-partner from title deeds in the event of a separation, amending percentage shares of a jointly owned property, transferring property from one family member to another, gifting a property, or if equity transfer has been requested by a court order.
Equity transfer explained
Put simply, equity is defined as the amount of the property you own. If your property is worth £150,000 and there is only £50,000 left to pay on your mortgage, you currently own £100,000 of equity in the property.
When you are transferring equity, you are either gifting it or selling part of your stake in the property to another person. You are then essentially sharing ownership with another person, so this is not a task to take lightly and is best only carried out with someone you intend to share your life with, or a child or family member you wish to help get on the property ladder.
Is Stamp Duty payable?
If the equity that you transfer to another person is above the threshold for Stamp Duty, you will be liable to pay this. Currently, the Stamp Duty Threshold is £125,000. Stamp Duty is currently payable at 2% of any amount over the threshold.
For example, if you transfer equity that’s worth £200,000 to another person, stamp duty is payable at 2% of the £75,000 above the threshold, making it a total payment of £1,500.
Stamp Duty is not payable in the event of a divorce, disillusion of a civil partnership or if a marriage is annulled.
What if there is a mortgage on the property?
If the property has an outstanding mortgage, the mortgage lender must consent for the transfer to be completed. If the equity transfer relates to someone being removed from the mortgage, the lender will take steps to be satisfied that the remaining party is able to keep up with the full mortgage repayments prior to consenting.
Capital Gains Tax
When transferring equity to your spouse or partner, capital gains tax is not payable. Similarly, capital gains tax is not payable in the event of separation if the partners lived in the property in the tax year prior to the equity transfer. Otherwise, capital gains tax may be payable when equity is transferred.