1. Agree the value
Agree a figure between you if you can. If not, an independent RICS registered valuer can set it. Many declarations of trust say exactly how the valuer is chosen and that their figure is final.
2. Work out their share
Use your declaration of trust. Take the value, subtract the mortgage still owed, and apply your agreed split. Most buyouts don't take off estate agent fees, because nothing is being sold on the open market.
For example: the home is worth £320,000 and £200,000 is left on the mortgage, so the equity is £120,000. With equal shares, the leaving owner's share is £60,000.
3. Sort out the mortgage
This is usually the hardest part. The person staying needs a lender to agree to put the mortgage in their name alone, which means passing an affordability check on one income. Talk to a mortgage broker early, before agreeing a timetable.
Until the lender releases the leaving owner, they're still responsible for the whole loan.
4. Transfer the title
A conveyancer usually handles the transfer of equity, because the lender will insist on one. The Land Registry then updates the title to show the new sole owner, and the Form A restriction is normally removed.
Stamp Duty
Buying a share counts as buying property for Stamp Duty Land Tax. HMRC counts the cash you pay plus any share of the mortgage you take over. In the example above, the person staying pays £60,000 and takes over the other half of the £200,000 mortgage, £100,000, so the amount for Stamp Duty is £160,000. At standard rates, Stamp Duty is due on the part above £125,000. In Wales, Land Transaction Tax applies instead, with its own rates. Married couples splitting up as part of a divorce are usually exempt; unmarried couples aren't.
Check your own figures with HMRC's calculator on GOV.UK before agreeing the deal.
If the buyout falls through
A good declaration of trust sets a deadline. If the person staying can't get a mortgage in time, the home goes on the market instead. That stops a buyout dragging on for years.
Sources
- GOV.UK: Stamp Duty Land Tax residential rates
- Welsh Government: Land Transaction Tax guide
- GOV.UK: Get information about property and land