It’s getting warmer and the days are lengthening. With winter behind us and the Easter break approaching fast, many of us will be thinking about spring cleaning – of our homes and our lives.
The tradition of performing a spring clean crops up in many cultures and researchers have suggested it originated in Iran. As the Persian New Year falls on the first day of spring, it’s still customary to clean the house from top to bottom in preparation for the year ahead. Whatever the origins, a spring clean can be a satisfying exercise, whether it’s literally sprucing up your house or more metaphorically getting your house in order. It can be a good opportunity to balance your admin with where you are in your life at this moment in time.
Getting your House in Order
A fitting example that brings together house and life is transfer of equity in your property, or transfer of interest as it’s also known. This occurs when we want to either add or remove someone from the title (ownership) of a property. When our lives or relationships change in certain ways and there is property involved, it can be easy to forget that these changes need to be reflected in the paperwork. People assume that this is a simple process, but it comes with wider considerations that they should be aware of.
Here are some of the situations where the need to transfer equity can arise, along with what you should bear in mind in each case:
A parent might want to gift their child a property. The gift must be for no financial consideration and there must be no duress or undue influence. It is important to be aware that if the property has issues like structural problems or registered notices against it, the offspring, by becoming a joint owner, will also be responsible for these. Therefore, the person receiving the gift should be made aware of their potential liabilities. As with any transfer of interest, appropriate due diligence must be undertaken before taking any action. Transferring ownership to their child can also have implications for the parent if they are still living in the property. For example, if their child becomes insolvent, the property could be at risk from creditors seeking to recover their losses and making the transfer void within five years of completion.
Divorce or Separation
When a couple who owned property together get divorced or separate, they might decide, rather than having to sell the property, that the interest of one is transferred to the other, either for a financial consideration or as part of the divorce settlement. This allows one of them to potentially stay in the house and the other to move on with their life. If there is a mortgage on the property permission from the lender will need to be obtained and the couple will need to secure separate legal representation due to potential conflict of interest between the parties.
Marriage or a New Relationship
When someone who owns a property starts a new relationship or gets married, they may want to transfer a portion of their interest in the property to their new partner and allow them to share ownership of it. If you want to do the romantic thing and surprise your new partner with this, I’m afraid you’ll have to think again. If you’re bringing someone into the ownership of the property, they’ll need to be made aware of this up front. As nice as it might be, property ownership comes with responsibilities and the new joint owner needs to be advised on what they are letting themselves in for before going ahead.
If there is a mortgage involved, you will need to get the lender’s consent for the transfer to take place. Additionally, with a mortgage, what many people might not realise is that there are also Stamp Duty implications. For example, if someone has a mortgage of £300k on a property and transfers half of their interest in the property to their partner, this is seen as £150k of chargeable consideration. With the Stamp Duty threshold currently at £125k, the additional £25k in this case would be liable for Stamp Duty. However, where there is no mortgage involved, the transfer would not be liable for Stamp Duty.
There can be financial planning benefits for couples transferring title to property. For example, depending on their financial and tax circumstances, if a property is sold under joint ownership this may reduce the Capital Gains Tax liability, compared with being under sole ownership. Every individual has a Capital Gains Tax allowance, which is £12,000 from 6th April 2019. By gifting assets to a spouse or Civil Partner, you may be able to take advantage of both your tax-free allowances, amounting to up to £24,000. You should of course take tax advice before doing this.
In cases of joint ownership, the right of survivorship applies. This means that on the death of one of the owners of the property, the survivor takes over the ownership by informing the Land Registry and producing documentary evidence. In cases of sole ownership where the owner dies, personal representatives will need to deal with the transfer of equity to the beneficiary. The potential risk to be aware of here is of ‘self-dealing’ by personal representatives which may arise if they are transferring to their own name or their partner, but provided the will of the deceased or a court order allows this, it should not be an issue.
There are many situations where we might need or want to transfer equity. With our multi-service offering at Progeny, we are well-placed to help in any of these instances and to make sure that your legal and financial affairs match what’s going on in your life. It’s important that the paperwork keeps pace with the personal changes – not just in relation to your property, but across all areas. It gives you the peace of mind that you’re protected and prepared for anything that comes your way, whatever the season.
If you’d like help spring cleaning your legal and financial affairs, please get in touch.