Our residential property solicitor consider transfers of equity between partners
Your home is often your most important asset, and you may be lucky enough to own other property such as a holiday home or a buy-to-let investment. Over time, if your personal circumstances change; you may want or need to transfer a share in a property. This could be the transfer of a share in the value of your home to your former spouse if you are getting divorced, or to a new partner if you have moved in together.
‘Transferring property between family members is not always straightforward,’ warns Katie Auburn, a Solicitors in the residential property team with Bradford & Son Solicitors. ‘Your plans will need to take account of ownership structure and should be consistent with your longer-term goals.’
Katie Auburn looks at the issues to consider when transferring property between partners.
Establishing the legal and beneficial interests
The first step will be to establish the current ownership structure. Land ownership can be multi-faceted, but basically there are two types of interest in land: legal and beneficial:
· The legal owner is the person in whom the property’s title vests. With registered land, this will be the person entered as proprietor in the Land Registry’s register of title.
· The beneficial interest in a property exists independently from the legal title. It represents the value of the property, for example a financial stake or the right to live there.
This division can sometimes be difficult to appreciate fully, but any transfer needs to address both the legal and beneficial interests in a property. On the plus side, it allows a lot of flexibility in dealing with joint property ownership and the creation of multiple interests in land.
If you already own property with someone else, the ease by which you can transfer your share of the property will depend on whether you are tenants in common or joint tenants. The legal estate will always be held jointly. However, you can hold the beneficial interest as joint tenants or tenants in common. The law treats a joint tenancy as indivisible: neither you nor your partner own a defined share in the property. In contrast, as tenants in common, you and your co-owner each own a distinct share. You can hold the beneficial interest in equal shares, or another split, which means either of you can choose to transfer your respective share to someone else.
If it is not clear whether you are joint tenants or tenants in common, we can help you work it out by examining the HM Land Registry records and the deeds.
Transferring ownership when your relationship changes
If your relationship breaks down, you could buy your partner out or they could agree to buy you out. In this case, a transfer of equity would ensure both the legal and beneficial interest in the property pass to the buyer. As there is usually no need to carry out the full range of property searches, a transfer of equity usually takes less time than a conventional purchase. However, if the property is subject to a mortgage, you will need your lender’s consent.
If you are joint tenants, you will also need to sever the tenancy first. You can do this by serving notice. This will effectively convert your joint tenancy into a tenancy at common, leaving you free to deal with your respective shares. It is important to follow the correct procedures for this to be effective. We can prepare the notices and ensure their correct service, guarding against the risk of any subsequent challenge. You and your co-owner can then sign the transfer of equity, which we will send to the Land Registry to record the change in ownership. Without this, problems could arise when you come to sell or take out a new mortgage.
Instead of buying a partner out, one of you may agree to gift their share. However, if you are getting divorced, always discuss your proposals with your solicitor first. This can avoid the risk of having to reverse the transfer later if the court orders a different settlement.
Becoming a co-owner with someone else
Conversely, you may already own a property but now want to share ownership with someone else, for example a new partner. The process is very similar to the one described earlier except as the sole owner you will not need to sever the tenancy. You and your new co-owner will, however, need to agree whether to be joint tenants or tenants in common and, if the latter, the proportions in which you will share the beneficial interest in the property.
If your property is subject to a mortgage, you will also need your lender’s consent. Your lender may need to carry out credit checks on your partner if they will also be responsible for the mortgage. Alternatively, you may choose to pay off your mortgage in full or remortgage. So, it is a good idea to discuss your plans with them early on. We are familiar with the requirements of all the major lenders, and we can complete the necessary formalities smoothly, ensuring the release of the old charge and registration of the new one at the Land Registry at the same time as the transfer.
The transfer should include a declaration of trust setting out your respective interests. This will determine the split of the net sale proceeds in the future, which reduces the risk of any dispute arising.
When dealing with the Land Registry, as well as ensuring the register reflects the change in ownership, we will check the appropriate restriction is entered. In practice, should you die before your co-owner, this helps ensure your personal representative, and ultimately your chosen beneficiary, can step into your shoes. Your co-owner will then have to agree with them what to do with the property.
Tax and other implications
You should always take independent advice before transferring property, especially if you are gifting it to another family member. There will often be tax implications.
Our conveyancing team can help
If you are looking to transfer property because of a change in your relationship we can ensure it is effectively legally and we can advise you of any wider implications.
For further information, please contact the residential property team on 01709 377412. Bradford & Son Solicitors has its office in Rotherham, South Yorkshire.
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