Do I need a statutory declaration of solvency transfer of equity?
Where a transfer is completed under market value then the mortgage lender or solicitor may require the party gifting their equity to make a Statutory Declaration of Solvency to an independent solicitor.
To be able to declare you are solvent, your assets (assets meaning valuable things you own like money in the bank, car, jewellery or houses) must outweigh your liabilities (HMRC taxes, loans, mortgages, contracts with suppliers). If you were made bankrupt within 5 years of gifting your equity then the transaction could be reversed in order for the property to be sold to pay off the creditors.
Here are some useful articles on this:
We have solicitors who can help provide legal advice on this so call us to get a quote on 0207 112 5388
Transfer of equity with existing mortgage
If you have an existing mortgage registered over the legal title then you have 2 options available to you:
- Obtain mortgage lender consent
- Get a new mortgage
If you can't get mortgage lender consent and the party/ies are unable to afford the mortgage in just the new owner's names then you cannot complete the transfer.
What stamp duty is payable on a transfer of equity?
You don’t pay Stamp Duty Land Tax (SDLT) if you transfer an interest in land or property to your partner as part of an agreement or court order because you’re either:
- divorcing
- dissolving a civil partnership
This also applies if the partners either:
- annul their marriage
- legally separate
In these cases there’s no need to tell HMRC about the transfer, even if the value is more than the Stamp Duty Land Tax threshold.
In all other cases, stamp duty land tax is payable on the total consideration being paid which is set out within the Finance Act 2003, Schedule 4, Stamp duty land tax: chargeable consideration. Consideration can be cash changing hands or the taking on of a debt (such as a mortgage or personal loan). To work out the total consideration you add the cash/money being paid for the share of the property being transferred and the new owner’s share of the existing mortgage/loan debt. If the total consideration exceeds the stamp duty threshold, then stamp duty is payable at the prevailing rate.
The payment (consideration) can take the form of cash, the giving of goods (giving a personal possession in exchange for the land/property), providing works or services (giving work or a service in exchange for the land or property), release from a debt, transfer of a debt, including the balance of an outstanding mortgage.
The Finance Act 2003 defines existing debt (mortgage): “existing debt", in relation to a transaction, means debt created or arising before the effective date of, and otherwise than in connection with, the transaction
For example, Jane owns a property and wants to add on her two sisters. The sisters are not paying any consideration. The existing mortgage on completion is £300,000 and no one owns a beneficial interest in any other property.
| Type of consideration | Amount of consideration |
|
Consideration paid for equity
|
£0
|
| Existing Debt/mortgage on completion |
£300,000 / 3 owners = £100,000
£100,000 x 2 new owners = £200,000 |
|
Total consideration used for stamp duty land tax calculation
|
£200,000 |
For Example, John and Mary are not married and decide to separate. They own a £350,000 house with a £250,000 mortgage. John is going to buy Mary's 50% share in the property. As John isn't married to Mary, and half the mortgage (£250,000 / 2 = £125,000) added onto the consideration of £50,000 equals £175,000, then stamp duty is payable.
| Type of consideration | Amount of consideration |
|
Consideration paid for equity
|
£50,000
|
| Existing Debt/mortgage on completion |
£250,000 / 2 owners = £125,000
£125,000 x 1 new owner = £125,000 |
|
Total consideration used for stamp duty land tax calculation
|
£175,000 |
You should call HMRC for help with Stamp Duty Land Tax queries and to confirm your own personal liability on 0300 200 3510 Opening times: 8.30am to 5pm, Monday to Friday (closed weekends).
4 Stages of the transfer of equity and remortgage process
-
1
Instruct a Solicitor
The parties remaining on the legal title instruct a solicitor to act on their behalf.
For the party leaving the property, they will need to complete an ID1 form and have this witnessed. The witnesses can only be a solicitor, licensed conveyancer, notary public, barrister, CILEx Conveyancing Practitioner, Chartered Legal Executive Conveyancing Practitioner, Chartered Legal Executive, lawyer outside the UK, officer of the UK armed forces operating overseas or an employee at a Land Registry Office.
If you are paying consideration to the leaving owner, then your solicitor will need to confirm the source of the funds you are using (read this article on How to prove source of funds).
-
2
Mortgage consent or mortgage offer
As highlighted above, getting the consent from your lender for a transfer of equity with existing mortgage if you are paying off a mortgage should be the first thing you do during the process. Without the consent from your mortgage lender your solicitor will not be able to progress your transaction.
If you are getting a new mortgage then your mortgage lender issues their mortgage offer to your solicitor. Different mortgage lenders will have different requirements for their solicitor to adhere to. Whereas some won't ask the solicitor to do anything more than their obligations under the CML, some mortgage lenders request additional information to be provided to them before they will agree for the mortgage to be issued. For example, Paragon Mortgages require the solicitor to provide copies of planning permission, building regulations and rights of way, however Santander Plc doesn't require this.
If there is an existing charge registered on the property, then the solicitor requests for the mortgage lender to provide a current mortgage statement in order to discharge the balance on completion. If there is a mortgage they will then send off the certificate of title to the mortgage lender requesting the release of the mortgage funds in time for completion.
-
3
Completion and payment of Transfer of Equity Costs
The solicitor sends you a financial statement before completion detailing the legal fees and disbursements. This is an example of a costs statement for a transfer with an existing mortgage of £200,000 and £50,000 consideration:
|
Cost
|
Description
|
|
£250,000
|
Mortgage advance from new lender
|
|
Less:
|
|
|
£200,000
|
Existing mortgage
|
|
£50,000
|
Payment for equity to leaving party
|
|
£TBC
|
SDLT payable at current rate
|
|
£599
|
Solicitor Fee INC VAT and disbursements (this varies depending on the property value, if the property is leasehold and if there is a remortgage
|
|
£40
|
Land Registry
|
|
£639*
|
Balance to complete excluding SDLT
* Leasehold financial statements would need to include a notice fee payable to the freeholder to confirm change of ownership and any new mortgage.
|
Once your mortgage advance is received by your solicitor and you and your solicitor are ready to complete, then your solicitor will redeem your existing mortgage, pay the consideration due to the leaving owner, settle their invoice and any disbursements (online ID check, official copy costs and OS1/bankruptcy). The balance, if any, is then repaid to you. The only amounts left will relate to the Land Registry fees and any costs due to the property being a leasehold.
-
4
Post completion
The process for discharging the old mortgage and registering the new mortgage/owners at the Land Registry can take between 1 to 6 months after completion. The time delay is linked to the Land Registry having a backlog of work. This can be extended further for leasehold properties if the freeholder/managing agent delays in releasing the notice. Delays can be worsened if your service charge and/or ground rent are in arrears so make sure that you have settled these prior to remortgaging otherwise you may have a stand-off, with your freeholder not releasing your notice until your service charge account is settled (read more about What happens after completion).
