Transferring Title Between Family Members: Legal Considerations

Transferring Title Between Family Members: Legal Considerations

Transferring ownership of a property to a family member is a common conveyancing practice but many people don’t realise the implications or things to consider when making this choice. Whether you are gifting your home to your children, adding your spouse to the title deeds, or transferring ownership following a separation, there are important legal and financial considerations to take into account.

Although transferring property within a family may appear to be a straightforward process, it is still a legal transaction that must be completed correctly. There may also be tax implications depending on the circumstances.

What Is a Transfer of Title?

A transfer of title is the legal process of changing the ownership of a property from one person to another/others. This is done by preparing a legal document known as a Disposition, which is then registered with Registers of Scotland.

Once the transfer has been registered, the new owner’s name will appear on the title sheet for the property as the registered proprietor.

Why Might You Transfer Property to a Family Member?

There are many reasons why someone may wish to transfer ownership of their property to a relative.

Gifting a property to children – Some parents choose to transfer a home during their lifetime as part of their long-term financial or estate planning.
Adding a spouse or civil partner to the title deeds – This may happen following marriage or civil partnership or to give title to a long standing co-habiting partner where one partner originally purchased the property alone.
Removing a former partner from the title – Following separation or divorce, ownership may be transferred into one person’s sole name as part of any financial settlement.
Transferring ownership between siblings – This can arise after inheriting a property or where one sibling wishes to buy out another’s share.
Estate planning – Some people transfer property to help organise their affairs or to provide financial assistance to family members during their lifetime.

Every situation is different, so it is important to obtain legal advice before proceeding.

Is It Simply a Matter of Signing a Form?

No, in short. Even where everyone agrees to the transfer, there are legal checks that need to be carried out.

Your solicitor will ensure that:

The current ownership is correct – The title deeds are examined to confirm who legally owns the property.
The transfer document is prepared correctly – Errors in legal documents can delay registration or create problems in the future.
The title is registered properly – All dealings on properties in Scotland moving forward must be registered with Registers of Scotland so in the case of a trasnfer of an older property which currently sits on the older system of registering titles in Scotland known as the Sasine Register, then your solicitor will require to carry out what is known as First Registration of the title at the point where ownership officially changes hands. This does result in a bit more work being required.

What Happens if There Is a Mortgage?

If there is an existing mortgage over the property and one of the parties is being removed and/or another added, the lender’s consent will always be required before ownership can be transferred or alternatively the existing loan repaid and the security on the title discharged

The lender may:

Agree to the transfer – If the remaining owner can continue to meet the mortgage repayments. This would then involve an additional deed being signed to vary the terms of the existing security.
Require a new mortgage application – The lender may need to reassess affordability before approving the change leading to a new loan offer being issued.
Refuse the transfer – If the lender believes the mortgage conditions will no longer be satisfied.

It is important not to assume that a transfer can proceed without first speaking to the mortgage lender.

Tax Considerations

Transferring property between family members can have tax consequences, even where no money changes hands.

Land and Buildings Transaction Tax (LBTT)

LBTT may be payable if the person receiving the property takes over responsibility for an existing mortgage or pays money for the transfer.

Every transaction is different, and your solicitor can advise whether an LBTT return is required and whether any tax is payable.

It is also important to note that when transferring to children, if your child does not yet own a property having title to your property will preclude them from the benefit of first-time buyers’ relief once they decide to purchase their own property.

In addition, if they live in the property with you, this will be considered their principal main residence, and this could give rise to Additional Dwelling Supplement for LBTT purposes. This is a tax on second homes introduced by the Scottish Government and where purchasers already hold title to a property that they live in, upon the acquisition of an additional property, even if they intend to live there, will give rise to a tax at 8% of the total purchase price of the new property. To avoid this your property would require to be sold prior to the purchase of the new property. It can also be reclaimed provided the property is sold within 3 years of the new purchase.

Capital Gains Tax (CGT)

Capital Gains Tax may arise where a property that is not your main residence is transferred and has increased in value.

This commonly affects:

Buy-to-let properties.
Holiday homes.
Investment properties.

Your solicitor may recommend that you also seek advice from an accountant or tax adviser.

Inheritance Tax (IHT)

Giving away property during your lifetime does not automatically remove it from your estate for Inheritance Tax purposes.

In some cases, the value of the gift may still be taken into account if you die within a certain period after making the gift.

Professional advice can help ensure that any transfer forms part of an appropriate estate planning strategy.

Giving Property as a Gift

Many family transfers involve no payment at all. Instead, the property is given as a gift.

While gifting property can be an effective way of helping family members, it is important to understand that:

You may lose control of the property – Once ownership has transferred, the new owner becomes legally entitled to the property.
Financial circumstances can change – Divorce, debt or bankruptcy affecting the new owner could have unexpected consequences.
The gift may have tax implications – Depending on your circumstances, tax may still arise despite no money changing hands.

Taking legal advice beforehand can help avoid unintended consequences.

Common Mistakes to Avoid

Although family members often trust one another, property transfers should never be treated as informal arrangements.

Common mistakes include:

Assuming no legal work is needed – Every transfer of ownership requires legal documentation and registration.
Ignoring tax implications – Unexpected tax liabilities can arise if advice is not obtained in advance.
Overlooking mortgage requirements – A lender’s approval may be needed before the transfer can proceed.
Not considering future circumstances – A decision that seems sensible today may create difficulties years later if family circumstances change.
Trying to complete the transfer without professional advice – Mistakes in property transactions can be expensive and difficult to correct.

Why is engaging a Conveyancing Solicitor so important?

A solicitor can guide you through the transfer from start to finish, ensuring that all legal requirements are met. They can also appraise you of all pitfalls and considerations to make when making such a transfer.

Your solicitor can:

Prepare the necessary legal documents – This ensures the transfer is legally valid and reflects the intentions of everyone involved.
Deal with Registers of Scotland – Registration is a vital part of completing the transfer of ownership and additional preliminary steps may be required.
Advise on tax implications – Identifying potential tax issues early can help avoid unexpected costs.
Work with mortgage lenders where required – If lender consent is needed, your solicitor can manage the legal aspects of the process.
Provide independent legal advice – Every family’s circumstances are different, and tailored advice helps protect everyone’s interests.

Conclusion

Transferring title between family members may seem straightforward, but it is still a significant legal transaction. Whether you are gifting property, adding someone to the title deeds or transferring ownership following a family change, it is important to understand the legal and financial implications before proceeding.

Obtaining legal advice at an early stage can help ensure the transfer is completed correctly, minimise the potential risk of unexpected tax liabilities and problems in the future. A conveyancing solicitor can explain your options, prepare the necessary legal documentation and ensure the transfer is completed competently, giving you confidence that your property transaction has been handled properly.

If you are looking for an experienced solicitor, would like to discuss matters or gain a greater understanding of any element of the process then please contact our experience Residential Conveyancing Team on 01324 622 888 or contact help@randa-fa.co.uk and we would be delighted to assist.