Gift, Transaction at Undervalue or Transfer of Equity

What is involved in gift and undervalue transactions?

If you are planning to transfer the equity of your property at less than market value, this is what’s known as a transaction at undervalue.

A transaction at undervalue occurs when ownership or part-ownership of a property is given at a lower price than its market value or for no consideration at all. If for example, a property is valued at 200,000, but the buyer purchases it for £175,000, this would count as a ‘transaction at undervalue’ and the remaining £25,000 would be classed as a ‘gift’.

These transactions are common amongst family members, for example if a parent wishes to gift property to their child to help them get onto the property ladder or when a new spouse is added to the legal title of a property but does not pay full price for their share. It can also occur when a seller is happy to accept a lower offer for their property if they are eager to sell it fast.

Why may Independent Legal Advice be needed?

Transferring property at less than its market value is not uncommon, but any unrepresented party agreeing to transfer their property will be required to seek Independent Legal Advice to confirm that the transfer is not happening as a result of any misunderstanding, or undue pressure or influence, which could make the undervalue transaction voidable.

By ensuring that independent legal advice is sought, a lender or solicitors involved in the transaction can satisfy themselves that the parties involved  were made aware of the implications of the gift or less than market value transaction. Independent Legal Advice is required in this context as a means for the buyer (or the receiver of the gifted property) to counter any potential future claims that the transaction at undervalue was made without  full consent and understanding of the value of the property. 

Do I need transfer of equity advice?

If you currently own a property with one or more people and wish to either buy out a co-owner’s interest or you wish to sell your existing interest to them or someone else, then this is what’s known as a ‘transfer of equity’ which sometimes requires Independent Legal Advice (ILA). Equity is the legal term for the monetary value of the property minus the amount of any outstanding mortgage is taken off.

There are many specific situations in which someone may want to organise a transfer of equity, with some of the most common including:

  • Marriage or civil partnership

If you are adding a spouse to the property’s deed and wish to transfer a sole mortgage into joint names 

  • Divorce, dissolution or separation

If you seek to transfer a share of a jointly owned property either so that only one person remains on the legal title or to a new co-owner. If there is a mortgage, the provider must ensure the remaining/new owner can keep up repayments. Unless full market value has been paid for the property shares, this may be deemed a gift or transaction at an undervalue.

  • Transfers to family members 

This could be an early inheritance gift from a parent to a child or a transfer of equity for tax purposes

Lender consent is required for a transfer of equity and in some cases, remortgaging may be involved. There will also be potential stamp duty, inheritance tax and capital gains tax implications to consider with each specific situation.

Why does Independent Legal Advice need to be sought?

Any legal owner who it not legally represented by solicitors regarding the transfer of equity may be required to obtain Independent Legal Advice. The Independent Legal Advice sought on a transfer of equity (often by the outgoing party) is to ensure their full consent and understanding of the transfer so that there cannot be a challenge to the terms of the transfer in the future. The Independent Legal Advice required should prevent future legal challenges being brought forward should complications arise, e.g. a claim that someone was unfairly pressured into agreeing to the terms of the transfer of equity.

How can I obtain Independent Legal Advice?

Looking for a qualified solicitor to provide Independent Legal Advice for a gift or undervalue transaction? Look no further. At ILA Connect, we’ve made it easy for you to link up with a solicitor qualified to provide bespoke advice no matter how complex the situation, and often the advice can be carried out online to achieve a cheaper fee! Rather than wasting valuable time searching for a firm who offers this service, simply get in touch with us via email on contact@ila-connect.co.uk or call our office on 07771970191 or 07809563030 to book an appointment.

Alternatively, click here to get a custom quote for Independent Legal Advice.

Once you have provided details on the type of advice needed and your specific situation, we will get back to you promptly with a quote for a solicitor equipped with the qualifications and experience necessary to deliver expert-level advice you can rely on. If you’re happy to proceed, we’ll set up an appointment at a time that is convenient for you. It really is that simple.