Many people think that to transfer ownership of property is a simple and straight forward transaction.
Unfortunately, this is not true. There are a number of potential pitfalls involved.
If transferring property from joint names to sole name:-
Potential claims from the Trustee in bankruptcy
If a donor should become bankrupt in the 5 years following a transfer at undervalue or a fit, the Trustee in Bankruptcy has the right to undo the transfer and take 50% of the value of the property to put towards the bankrupts creditors. If the new owner has raised a mortgage to find the transfer the Lender is at great risk (the owner potentially not having sufficient capital to repay the loan on only a 50% ownership). In this instance indemnity insurance should be purchased to protect the Lenders interest and a declaration sought from the outgoing owner that the transfer is not being made to avoid creditors or in contemplation of bankruptcy
Stamp Duty – What is the consideration? If the outgoing party will no longer be liable for half the mortgage debt this needs to be incorporated into the transfer as part of the consideration being paid for the property. The value of the Property needs to be ascertained and the debt deducted to calculate the benefit of the transaction to determine the consideration for stamp duty purposes. If the transfer is being made under the terms of a Court Order Stamp Duty may not be payable.
If there is no court order but the couple are married or co-habiting, they need to be aware that if financial matters do go before the court, the court may order additional payments payable as a result thus changing what the parties have actually agreed. However, obtaining a court order can be a lengthy process, even if matters have been agreed as all financial aspects of both parties’ affairs will be looked at before any order is granted
Independent Legal Advice should be sought by the outgoing party. There is a potential for conflict of interest between the two current owners whether or not the transfer is amicable. If one party decides they were unfairly treated , there needs to be evidence to show that the parties agreed the terms, and one parties solicitors cannot independently do this. The legal adviser for the remaining owner cannot advice the outgoing party if the payment for the transaction is fair. If the parties are a married or co-habiting couple splitting up the court may have the last word on whether the transaction was fair. This means that the court could decide that the parties’ financial agreement could be overturned and changed.
If the property is being transferred into the names of children further investigated to ensure the outgoing or transferring parties are not being persuaded to do so by the children or others as the transaction could be challenged as a result. It may be that the children are building a granny annex to house the elderly parents which might explain the transaction. But these details need to be ascertained and explained.
If the transfer is being made in anticipation of a parties’ potential departure for residential care the Local authority could, potentially, have the right to undo the transfer in order to take the fees for the care of that person.
If transferring from sole name to joint names
The new owner needs to be aware of their obligations for covenants and mortgage obligations
Are there any payment being made for obtaining an interest in the property. This could be looked at in the future
If the new joint owners are having a mortgage we can act for both parties so that we can advise the incoming owner as above
Part of the consideration may also be the liability for the new mortgage advance being borrowed
Will advice should be sought by the parties, especially if there are unequal capital amounts being introduced. For example if the current owner has purchased the property and used their own funds to pay the deposit. If the current owner has paid off a previous owner, this will also need to be added to the equation
Any payments made (including consideration where mortgage debts are concerned need to be considered when making an assessment for Stamp Duty Land Transaction liability.
The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.