How to transfer ownership of a property

We look at common reasons why you might want to transfer ownership of a property, how the process works and the legal and tax implications involved.

Katherine Binns Director, Research

Reasons to transfer ownership of a property

There are a number of reasons why you might want to transfer the ownership of a property into someone else’s name:

• If you marry or are unmarried but cohabiting, and want to transfer half your property to your spouse or partner.
• Divorce (as part of the financial settlement).
• Living in a house-share of fellow owners (tenants in common) and you need to replace someone.
• Maybe you want to gift a property to your children to reduce inheritance tax.

These are just a few of the scenarios, in addition to simply leaving a property in your will.

Whether you’re on the giving or receiving end of a transfer of ownership of property, it’s important to know how the process works and all the legal and tax implications. So you don’t end up with any nasty surprises.

Get further advice from an Independent Financial Adviser on the financial implications of a transfer of ownership

Transfer of ownership into joint names

If you already own a home and then marry, you might then want to divide ownership between you. The simplest way to do this is as a gift, since no money changes hands and there are no taxes to pay. Your spouse/civil partner is simply added to the title deeds as a joint tenant so you own the property jointly between you.

Alternatively, you can do a ‘transfer of equity’ in which your partner buys a share (typically 50%) of the property’s value. Note that the partner might have to pay stamp duty if the value of their share (equity plus mortgage taken on) is over £125,000.

You’ll also need to get a solicitor to handle the transfer of equity process. Find a lawyer to undertake your transfer of equity.

Getting divorced – transfer of property ownership

A transfer of equity may be required when sharing out the financial assets of the marriage following a divorce. So even if you own the whole property and your spouse isn’t on the title deeds, the financial settlement might still conclude that the property needs to be shared between you. There won’t be any stamp duty to pay on this kind of transfer, but there might be Capital Gains Tax (depending on a number of circumstances).  See what happens to my home when I get a divorce.

Replacing or buying out a tenant in common

Couples who own a home together generally do so as joint tenants. But groups of up to four people can own a property as tenants in common, where they each hold their own (sometimes unequal) share. This leaves them free to sell their share and move out, if they wish. A tenant-in-common could either sell to another (new) tenant, or the remaining tenants could buy them out and increase their own share(s).  A Deed of Trust will normally set out this agreement at the time of purchasing the property as tenants in common.

This transfer of equity is handled much like a standard property sale, and usually needs a lawyer to do the transfer of equity. Find a lawyer to undertake your transfer of equity now.

Gifting property to children

Some parents in their later years take steps to reduce their inheritance tax bill (IHT) by gifting some of their assets to their children. This can work, provided the person making the gift doesn’t die within seven years of making the gift. Otherwise, there may still be some IHT to pay, on a sliding scale depending on how many years they live after making the gift.

This can be done with property too, but there are risks and caveats, particularly if the property is that person’s home. If that person wants to carry on living there, they must pay rent at the market rate. If they live rent-free, the property won’t be exempt from IHT. Similarly, if a parent gives away their home and then has a major quarrel with their family, they might even find themselves evicted. Another risk is if the new owner gets divorced and the property has to be sold as part of a divorce settlement. So think very carefully before giving someone else your home – no matter who they are.

An Independent Financial Adviser can be helpful when carrying out a transfer of ownership. Our partners at Unbiased can connect you with local advisers.

Property inheritance transfer of ownership

The issues surrounding inheritance tax on property mostly affect the beneficiary, so we’ll look at it that way round. If you inherit a property, it’ll be transferred to you during the probate process. You can then register your ownership at the Land Registry. That’s simple enough, but issues can arise for a number of reasons.

1. Is the mortgage paid off?

If the mortgage isn’t fully repaid, this is now your problem. Depending on the state of your finances, you might have to come up with a solution quickly, such as renting the property out or simply selling it. Fortunately, the probate process is glacially slow, so you should have months to see this coming.

2. Is there inheritance tax to pay?

Beware of any inheritance tax (IHT) bill. Every individual can leave up to £325,000 inheritance tax free, with an added allowance of £175,000 for their main residence. This means a couple using all their IHT allowances could leave a family home worth up to £1m tax free. On the other hand, if one person is bequeathing a second property (i.e. not their main home), then IHT will need paying on any of its value over £325,000.

3. Do you already own a property?

If you don’t yet own a property, then great – you do now. But if you’re already a homeowner, your inherited home is now a second property. This means that if you sell it, and if it’s risen in value since its probate valuation, then capital gains tax (CGT) is payable on that increase. But any increase under £12,300 won’t be taxed as this will be covered by your CGT allowance. And if you divide ownership jointly between yourself and a partner, you can use both your CGT allowances to cover £24,600 worth of extra value.

4. Are you inheriting the property with anyone else?

Are you the sole inheritor or are siblings / other relatives getting a share? And are your shares equal? Who is legally able to make decisions about the property? The more co-owners, the more complicated the arrangement can become. It’s not always a simple case of bigger share = more influence (for instance, if part of the property is held in trust for someone). This is an area for legal advice, as property law can be a labyrinth of complexities.

5. Does anyone else still live in the property?

Your inherited property might have a co-owner still living there. It might even be someone who doesn’t own any share themselves, but has a legal right to stay there indefinitely under the terms of the will. In this (admittedly rare) predicament, the property might be a millstone until you can sell it or come to an arrangement with the occupant.

More common is inheriting a rental property with incumbent tenants. Any tenant will have certain legal rights, so you’ll also acquire a landlord’s responsibilities. On the plus side, at least you will now receive rental income. But again, this could make your tax affairs more complicated.

When you transfer the ownership of a property, you will typically need legal advice, but may also require financial advice, mortgage advice and the help of an accountant to handle any tax implications.

You can find a financial adviser, mortgage broker or accountant with our partners Unbiased