If you own a property but are looking to transfer ownership to a family member, then you have come to the right place. There are various options available in completing this process, and each type of transfer comes with its own tax implications.
In this blog, we have taken a look at the ins and outs of transferring ownership and the variety of taxes involved.
If the transfer of the property is a gift, then the owner will need to transfer via a Deed of Gift. This is otherwise known as a Transfer of Gift. After the legalities are finalised, the chosen family member will be named as the new owner on the land registry.
A TR1 form must be completed to transfer the entire ownership, and a TP1 form for a partial transfer. There is also an AP1 form which will notify the land registry of the change of property details.
It is easiest to use a conveyancer for the process but since there are fees involved, many people look to undertake the process themselves. When this is the case, an ID1 form needs to be completed to confirm the current owner’s identity.
There are processing fees involved, but it will still be more affordable than using a conveyancer. Upon completion, the forms and the fee should be sent to the land registry.
If you have an outstanding mortgage on the property, then the person making the transfer will need the permission of their lender before they can start the process.
One of the most common times where property owners wish to transfer ownership occurs after marriage. Adding your spouse to the title deeds requires a transfer of equity.
The owner stays on the title deeds, but a share of equity is transferred to another party or multiple parties. There are legal requirements involved in this process, so a solicitor will be needed to transfer equity and complete the land registry forms and fees.
If you have a mortgage, then the lender will need to be consulted. With affordability and credit checks involved, they will need to approve the additional person to ensure the mortgage will still be repaid every month.
Be mindful that stamp duty may apply when adding a party to the equity. If the mortgage or equity the new party is taking on is over £125,000, they will have to pay tax on any equity over this amount.
Many homeowners want to know how to transfer ownership of a house to their children. This can help get them onto the property ladder or avoid paying inheritance tax while maintaining the property as a main residence.
A transfer of equity can be a good option in these circumstances and works in the same way as described for transferring a house to your spouse.
Otherwise, gifting property is the most common option here. This is best if you do not want your children to pay inheritance tax when you die and will apply to a property worth over £325,000, starting at 40%.
If the person gifting the property lives on for seven years and beyond, then it is not likely that inheritance tax will be applicable. This is as long as the person gifting does not benefit from the transfer as though they were a primary householder.
If you own a property with someone else, it is possible to sign your house over to someone else. Joint tenants or tenants in common share the same rights to the property and the property in question will transfer to the other party/owner if one dies.
Tenants in common is the name given when two or more parties own different amounts of equity in the property. It does not automatically transfer to the other upon one party’s death, but it is possible to pass on a share of the property in a will.
In most cases, this is used when adding a child to the title deeds but not having them as a joint tenant.
The process of transferring ownership of property takes around four to six weeks from start to finish. This depends on a few factors, but the speed of your conveyancer will have a big say.
Most delays are caused by third parties, waiting for paperwork and mortgage lenders.
Inheritance tax in the UK must be paid once the property has been bequeathed in a will. However, this is only if the property is over a certain value. This value must be greater whether transferring to a child or a grandchild.
If the transfer of ownership is made more than seven years before the parent or grandparent’s death, then inheritance tax is not usually payable.
If the transferring party passes away between 3 and 7 years after gifting, the children will have to pay tax on the property, but not the full 40%. This decreases year on year and is known as tapered relief.
If you die between 3 and 7 years after gifting your property, your children will still have to pay tax, but not the full 40%. This is known as ‘tapered relief’.
After you have gifted the property, you will not be able to live there rent-free. If you do, your property will not be exempt from Inheritance Tax. Instead, you must pay rent in line with the average rate in the area.
This is why many people consider making the transfer before their later years. The recipient should not give the other party anything in return to avoid inheritance tax. The new owners may charge the previous owner rent but this needs to be at market rent and not lower or it will be viewed as chargeable consideration.
A Deed of Gift has several requirements for it to be done correctly. One requirement is that confirmation that the current owner is of sound mind and is acting of their own free will must be provided. Also, any payments and debts associated with the property must be settled before transferring.
There is also Capital Gains Tax to consider. This is calculated as the difference between the property’s value when it was first purchased, and its value at the time of the transfer.
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For tips on how to avoid inheritance tax, click on the link.