If you are considering transferring the title to your property, you may view the process as daunting and complicated. Here at James & George Collie, we aim to ensure the process runs as smoothly and efficiently as possible.
Our team is happy to answer any queries you might have and provide advice that allows you to make the right decision for you.
The Process
A Transfer of Title is a process in which the legal owner of a property is transferred to another person or altered in some way. The process is similar to the sale of a property but does not include a for-sale price.
Reasons for Transfer
There are several reasons this might be done. A person may decide to transfer their property to a family member to minimise their inheritance tax bill. A homeowner may want to add their partner or spouse's name to the title deeds of their property. Alternatively, a homeowner may simply want to gift their property to someone else, like their child or grandchild.
Whatever the reason may be, the changes to the property’s title deed must be registered in the Land Register of Scotland. This is a complex process that requires legal knowledge, so it is recommended that this is done through a qualified solicitor.
Risks
Gifting your family home, what are the risks involved?
Gifting your family home to your children can have its advantages: potentially mitigating inheritance tax being just one. But as with anything, there are also disadvantages too. What if your adult child gets divorced from their spouse, or dies? Perhaps they’re experiencing financial difficulties or later fall out with you. If you’ve gifted your home to them, you could struggle to maintain the roof over your head.
Tax considerations - Inheritance tax
The risks involved in gifting your home don’t simply stop at family considerations. Making a gift of your home can have tax consequences when you die for the nil rate IHT band allowance regarding a main residence (currently £500,000 if inherited by children or grandchildren). Any such gift demands a thorough examination of the property’s title deeds, the legal documents transferring the title and registration forms, facilitating the change of legal title.
If you live for 7 years following the making of a gift, it will fall out of your estate and, therefore, will not be subject to IHT. Until 7 years’ have elapsed, the gift will be treated as a ‘potentially exempt transfer’ (PET). This means that should you die within 7 years of making the gift, it will be treated as part of your estate and therefore incur IHT liabilities.
If the PET is higher than the IHT allowance of £325,000, the rate of tax charged decreases in line with the number of years since the gift was made. This is called ‘taper relief’. In theory, most gifts don’t incur tax because the IHT allowance is apportioned to gifts made within 7 years of the donor’s death before the rest of their estate.
Tax considerations - Capital gains tax
There are also potential capital gains tax (CGT) considerations. Let’s say you own a buy-to-let property and you want to gift it to your daughter; it is unlikely you will be able to do so without incurring CGT charges. This is because HMRC treats gifts of property in a similar way to that of a sale, therefore the tax will be the same as if you had sold it on the open market.
In simple terms, CGT is charged on any profits you make when certain assets are sold. But after that, things get more complex because the rate you will pay and any allowances you are entitled to will depend on what you are selling and how much profit is made.
First Steps
To transfer the relevant property, your solicitor will need to inspect your current title deeds and use them to prepare a new deed. They will need to confirm that the owner(s) of the property match the identities of the person(s) seeking to transfer the property. This is because property cannot legally be transferred by someone who does not own it.
Consent
If you have a mortgage on the property, your mortgage lender will have to agree to any changes in writing before the transfer can be done. If the lenders agree to the transfer, the new registered owners of the property will be responsible for paying the mortgage.
The mortgage must be paid off before proceeding if the lender does not agree to the transfer. This could be done by re-mortgaging the property with a different lender or simply paying it off in full.
Preparation of Documents
Once your solicitor has completed these checks, the transfer can proceed, and a new deed will be prepared. The new deed will need to be signed by the person transferring the property and their spouse if they are married. A property which is the matrimonial home of a married couple or a couple in a civil partnership cannot be transferred without both spouses’ consent. A matrimonial home is any property that has become a family residence and where spouses or civil partners live together.
Alongside the new deed, your solicitor will prepare a Declaration of Insolvency. This will need to be signed by the person transferring the property. The declaration will state that you are not insolvent or transferring the property to avoid creditors.
Registration
Once all documents have been completed and signed, your solicitor will proceed with the registration of the new deed. They will need to complete an application with the Registers of Scotland. The application will be accepted if all the information is correct and meets the Registers’ guidelines. The deed will then be registered in the Land Register, and legal ownership of the property will change.
For answers to FAQs, visit our Transfers of Titles FAQs page here.
Property Solicitors in Aberdeen and Stonehaven
To speak to a member of our team regarding a transfer of title, please contact us by telephone on 01224 581581. Alternatively, complete our online contact form.