Title splitting is a legal process that involves separating a portion of the legal title to a property to achieve a specific goal. This could be because you wish to split a parcel of garden land, for example, from your existing property to create a plot for development purposes. Another example would be that you own a building, e.g. a block of flats and only the land and building are currently registered at Land Registry under one single freehold title. You may wish to split the freehold title, separating each flat and creating new leasehold titles. These leasehold titles could then be sold or mortgaged individually.
The purpose of a title split varies depending on your goals. Some may wish to create a plot of land to enable them to build a dwelling house and in this scenario, you may require development finance. Some lenders will insist on the title being split and registered at Land Registry before drawdown of funds can take place.
If you are considering a title split, there are several important considerations to keep in mind. These are as follows:
Do you have a mortgage on your existing title?
First, you will need to assess whether you have a mortgage on your existing title. If so, formal consent or a discharge of part will need to be sought from your existing lender before any documents can be finalised and registered at Land Registry. Parties involved in the title split also cause real issues and will delay the legal process considerably if you have not properly considered the structure. You cannot transfer a piece of land or grant a lease to yourself, i.e. the entity that owns the existing freehold title must differ from that entity that is acquiring the property following the split.
Do you own a property in your sole name?
If you own a property in your sole name, then the new lease or transfer of part must result in the property being owned by at least one other person in joint names, or alternatively, the new title could be granted to a company you own.
What documentation is required?
Documentation is required to enable the title split. If you are looking to separate a plot of land/building from an existing freehold title, you will need a Transfer of Part Deed (“TP1”). If on the other hand, you wish to split apartments within a building, you will only achieve this by creating long leases of each flat. Regardless of the transaction, any rights to be granted or the reservation of rights over any retained land or other parts of the building will need to be considered carefully by an experienced solicitor.
What are the tax considerations?
It is also important to consider two types of tax when title splitting: capital gains tax and Stamp Duty Land Tax (SDLT) in England/Land Transaction Tax in Wales (LTT). Capital gains tax may apply when you sell a property or a portion of it after the title has split. SDLT/LTT is a tax on land transactions in England and Wales respectively. It is important to note that SDLT/LTT is calculated based on the value of the property or land being transferred, not the value of the title being split. It is important to take expert advice on the tax implications of any proposed title splitting scheme.
The possibility of mortgaging part of a freehold title
When considering the possibility of mortgaging part of a freehold title, it may be possible to split the title without a Transfer deed or new lease. Land Registry will, in some scenarios agree to split the title if an application is submitted with a Land Registry-compliant plan of the area to be split, together with evidence from the new lender that the title split is required. In any case, it is important to instruct a solicitor who is experienced in title splitting.
Legal constraints attached to the existing property title
Any legal constraints attached to the existing property title should always be considered before embarking on a title splitting project. For example, the title may contain restrictions on the number of buildings which can be erected on a particular site. Furthermore, you will need to ensure any proposed project will not infringe on any rights which are registered against the property title. You should speak with a solicitor at an early stage to establish whether any of these issues exist before making any substantial arrangements to split a title.
The need for a compliant plan
In all cases, Land Registry will require a compliant plan. The plan must clearly show the extent of the property and must clearly state on which level the property is situated. The scale of a title plan is usually 1:1250 in urban areas and 1:2500 in rural areas. A surveyor should be instructed to prepare a plan or plans at an early stage of a title splitting project.
Summary
In conclusion, title splitting can be a complex legal process that requires careful consideration of a number of factors. If you are considering a title split, it is important to seek professional advice from a lawyer who is a specialist in this area of law who will help you navigate the process and ensure that you are aware of all the implications of title splitting.
If you are currently looking to title split and would like expert advice, call our friendly team today on 01244 312306 and we will be happy to advise and assist you.
