Transfer of Equity (2)
Transfer of Equity continued
Re-mortgaging and Transfers of Equity
Where the property is being re-mortgaged at the same time as the transfer of equity there will be no need to obtain the existing lender’s consent to the transfer. This is because the two documents will be dated simultaneously and the old mortgage will be paid off. The new lender will require all parties named on the deeds to be parties to the new mortgage.
Transfer of property for less than it’s market value or where no money is changing hands
Where a property or a share in a property is transferred for free or at a discount it is called a ‘transaction at an undervalue’. Basically, this means that in the eyes of the world the property is being transferred for less than it is actually worth if it was sold on the open market.
There are many reasons why people transfer property for less than its current market value or for free. These may be personal reasons, such as marriage or family gift, or they may be for commercial reasons, where a property is transferred from one company to another. However, some property owners may seek to transfer property to another person to avoid losing the property as a result of insolvency or debt.
This type of transfer is affected by the insolvency laws. Simply put, if a property is transferred for less than its value, the law deems that this is a gift donated by the owner of the property to the recipient of the share in the property. If the person who transfers the property becomes bankrupt within 3 years of the donation the law can undo the transfer. This enables the law to defeat debtors who seek to protect their property from creditors by transferring it to a third party.
The insolvency laws allow the official receiver to sell the property and to pay the creditors of the insolvent person from the proceeds.
Because of the effect the insolvency law can have on property transfers the lender will insist that the property owner, who is transferring a share in a property for free or for less than it is worth, signs a deed called a Declaration of Solvency. The lender may also require the property owner to take out an insurance policy to protect the mortgage repayments. A solicitor will be able to draw up a Declaration of Solvency and will also be able to arrange insolvency insurance if required to do so. This type of insurance can be expensive and it is the property owner’s responsibility to pay for the premium. However, the premium is generally a one off premium which does not need to be renewed.
Transfers of property at market value
Where a share in property is being transferred for the full market value the solicitor will prepare a transfer deed which will show the price paid for that share.
The lender may ask for evidence that the full market price has been paid. Lenders often require a written valuation from a surveyor or estate agent confirming the current market value of the property.
Stamp duty on Transfers of Equity
Since December 2003 the Inland Revenue require a Stamp Duty Land Tax form to be completed and signed by the property owner. This form, known as the SDLT, must be signed by the property owner (s) and delivered to Inland Revenue within one month of the date on the transfer deed. There is a fine payable for failure to send an SDLT or for sending it late. The fine may be up to £200.00. The responsibility to complete, sign and submit the form is that of the property owner. The solicitor will usually complete the form, arrange for it to be signed and then submit it to Inland Revenue. Most solicitors charge a small fee for this service.
Stamp duty may be payable on the transfer of a property whether it is sold or gifted. A solicitor will be able to advise you whether stamp duty is payable.
Some equity transfers are exempt from stamp duty, for instance where a property is being transferred as a result of a court order following divorce proceedings.
To check current stamp duty rates visit www.inlandrevenue.gov.uk
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