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Transfer of Equity to a family member: Costs, Tax and the UK process

This is a legal process where the ownership of a property is changed by one or more people being added or removed from the property title.

The common reasons people choose a Transfer of Equity:

• Marriage or Civil Partnership: adding a spouse or partner to the title.
• Divorce or break-up: removing a former partner from the title.
• Buying out a Co-Owner: one owner purchasing the other owner’s shares.
• Gifting property to a relative.
• Creating a more favourable tax position for the family.

Can we use the same solicitor, or does each person need their own solicitor?

It depends on the circumstances. Your solicitor will be able to answer this once they have all relevant information of the proposed transfer.

Are there any Tax implications on transferring your property?

• Stamp Duty Land Tax (‘SDLT’) may be payable if the transfer is for any payment, or if a mortgage debt is being repaid or remaining on the title.
• If you want to transfer your property as a gift, you may be liable for capital gains tax and there will be inheritance tax consideration.

Quastels’ Private Wealth team can assist with any tax queries involving transfers of equity and wider tax planning considerations.

What is the process?

1. If the property is mortgaged, first speak to your mortgage lender as their consent may be required for the transfer.
2. Take tax advice and appoint a solicitor. At Quastels, we can advise on the tax position as well as deal with the conveyancing (the conveyancing costs will be lower than a normal purchase).
3. If the property is leasehold, a ‘licence to assign’ may be required, which is the landlord’s consent to the transfer. Your solicitor will check the lease to see if this is required and if so, will obtain it as part of the process.
4. All parties to the transfer will need to sign a Transfer Deed with an independent witness.
5. Once all above points have been satisfied, completion can take place and your solicitor will deal with any necessary payments.
6. Depending on the circumstances, SDLT may be payable and your solicitor will lodge the SDLT return.
7. If Leasehold, your solicitor will serve notice of the transfer upon the managing agents to ensure they update their records.
8. As the final part of the process, your solicitor will send an application to H.M. Land Registry to update the property ownership details.

To discuss a Transfer of Equity, contact our Residential Real Estate team, and our Private Wealth & Tax team.

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Conveyancing FAQs for First-Time Buyers

What are the key steps in the conveyancing process?

Answer: The conveyancing process can be divided into five essential stages:

1. Onboarding and Background Checks: We will conduct onboarding procedures, which include necessary background checks. This step involved verifying the source of funds, a legal requirement before proceeding with any property transaction.
2. Contract and Title Review: Once background checks are clear, we will review the contract and title documents to ensure that there are no issues or discrepancies that could affect your purchase. We then report to you on the title and provide you with the related documents we have reviewed.
3. Exchange of Contracts: This pivotal stage involves the formal exchange of contracts, at which point you will pay your deposit. Once contracts are exchanged, the agreement becomes legally binding, and both parties are committed to the transaction and a completion date is set for you to collect your keys.
4. Completion: On completion day, ownership of the property officially transfers to you. You will pay the final balance to the seller, and you will receive the keys to your new home.
5. Post-Completion: After completion, you will be responsible for paying any applicable Stamp Duty Land Tax. We will handle the submission of this tax and registration of your ownership with the Land Registry to ensure that your title is officially recorded in your name.

How long does the conveyancing process take?

Answer: The duration can vary based on several factors, such as the property type, any chain involved, and local authority processes. On average, it can take between 6 to 12 weeks, but it may be longer in complex situations.

What is the difference between freehold and leasehold properties?

Answer: A freehold property means you own the property and the land it stands on outright, giving you full control. In contrast, leasehold means you own the property for a specific period but not the land. You’ll often need to pay ground rent and almost always service charges. It’s essential to understand these differences when purchasing to know your rights and obligations. The differences between the two are outlined in our engagement letter and if you are purchasing leasehold, our report to you will go into detail on your rights and obligations under the lease you wish to purchase.

I am happy to proceed. What do you need from me to start the process?

Answer: To initiate the conveyancing process, we need final terms of sale, often referred to as the sales memo, from your estate agent or the reservation form detailing the terms of your transaction. Once we receive this information, we will create your file and guide you through the initial steps.

Does your retainer include tax advice?

Answer: No – although we provide some advice regarding calculation of your Stamp Duty Land Tax and assist you with your submission. We have a dedicated Tax Team that can assist you with further specialist enquiries as may be necessary.

I have agreed an incentive with my seller. How does this work?

Answer: Any incentive will be deducted from the final balance due to the seller on your completion. We are fully independent and so any incentive you have agreed will not work as a credit to your account with us.

Do you recommend I use a surveyor?

Answer: Yes, we strongly recommend using a surveyor, even when purchasing a new build property. A survey can identify defects or issues that need addressing before you finalise the sale. It’s best to conduct this survey before the exchange of contracts so that any findings can be raised with the seller, allowing for negotiations or repairs to be arranged as part of your transaction.

What are property searches, and why are they important?

Answer: Property searches are investigations conducted to uncover important information above the property and its surroundings, such as planning permissions, local authority issues, and environmental risks. These searches are crucial as they help identify potential problems that could affect your decision to proceed with the purchase. You don’t have to order searches if you are purchasing without a mortgage, but in most cases we would recommend them so you can have a more holistic view of the purchase and factors that may affect the property.

When should I apply for financing?

Answer: Timing is crucial when it comes to securing financing. Ideally, you should have your mortgage offer in place before the exchange of contracts, as this ensures you can proceed without the risk of no financing on your completion date. If your completion date is several years away–such as when buying off-plan–it’s advisable to speak with a mortgage broker early in the process. This way, you can understand your options and get pre-approval before committing to the purchase.

What happens on completion day?

Answer: On completion day, the final payment for the property is transferred to the seller’s solicitor, and ownership if officially transferred to you. You’ll receive the keys to your new home, and we will handle the registration of your ownership with the Land Registry. It’s an exciting day!

If you have any further questions, please contact our Residential Real Estate team.

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Assignment of Off-Plan Contracts

We regularly deal with off-plan contracts at Quastels. These are contracts to buy a property, usually an apartment, that is still being constructed. A significant difference between off-plan contracts and those for buying ‘second hand’ property is the flexibility to ‘assign’ the contract before completion.

An ‘assignment’ of a contract is the transfer of the benefit of the contract to a third party, who then completes the purchase. An assignment may be to a relative, or to your own company (often referred to as ‘family assignments’); or to an unconnected party, where you are effectively selling the contract on.

The Standard Conditions of Sale for second hand properties would not usually allow the purchaser to assign the contract before completion. Off-plan contracts, however, would usually allow this.

Upon exchange of contracts for an off-plan contract, the completion date will be on written notice from the seller (when the property is finished). This contract will contain an anticipated/target completion date for when the developer aims to complete the property (this will usually refer to quarter of their target completion year, for example Q1 being between January and March). When the property is finished, the buyer will be required to pay the remainder of the purchase funds to complete.

After exchange of contracts, and before the developer completes the building, assignment will provide an exit for the original purchaser with an assignee taking over the deal with the developer. The original purchaser would usually have paid a 10% deposit, they may also have paid a stage payment subsequently, sometimes an additional 5% or 10%. If the original purchaser is selling on the contract, they will require their buyer (the ‘assignee’) to reimburse the deposits paid, adjusted to take into account any profit or loss in the selling price to the assignee. The amount being paid for the assignment is known as the ‘assignment fee’. The assignment is effected by a Deed which transfers the benefit of the contract and the obligation to pay the remaining funds due to the developer.

Certain conditions are usually imposed by the developer to assign an off-plan contract:

1. obtaining developer’s written consent to assignment;
2. providing satisfactory ID and AML documentation for the potential assignee;
3. a time period within which the buyer cannot assign (usually not before 12 months from exchange of contracts and one month before estimated completion);
4. paying the developer’s lawyer’s administration fee (usually in the region of £500 plus VAT);
5. restrictions against using the developer’s marketing material;
6. only one assignment being permitted.

Overseas investors are specifically interested in the ability to assign contracts due to the potential to make financial gain in a rising market, or to address taxation changes. The provision also allows sensible flexibility for the purchaser, for example if their circumstances change, or they wish to add a relative to the contract.

It it important to be aware that not all mortgage lenders will agree to fund purchases that involve an assigned contract. An ‘assignee’ should always check with their mortgage broker first, as should a buyer thinking of assigning their contract to a relative.

If you would like to discuss issues involving this topic further, please contact Nargiz Abdullayeva.

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