What is a Deed of Transfer and Deed of Gift and why might a capacity assessment be required when transferring property ownership.

The transfer of a property is completed by signing a Deed of Transfer (commonly a TR1 form in the UK), a legal document that formally transfers property ownership from a seller to a buyer.

This enables the Land Registry to update the title.

Transferring ownership of property is a significant decision that should, where possible, be made with legal advice and guidance to ensure the legal parameters of the deed have been explained to all parties.

Where there is doubt in regard to a person’s capacity to sign the Deed, a formal capacity assessment should be considered.

The capacity assessment used for a Deed of Transfer can be completed using:

Contract capacity

Underpinned by the Fehily v Atkinson 2016 case law:

• Recognising the issue: A person needs the mental capacity to recognise the issues that must be considered, to obtain, receive, understand and retain relevant information, and to weigh this information in the balance of reaching a decision.
• Capacity for Specific Issue: The question of whether a person lacks capacity is issue-specific and should be judged in relation to the particular decision or activity in question.
• Ability to Understand: The question is not whether the person actually understood the transaction; instead, it is whether the person had the ability to understand the transaction if the consequences had been fully explained.
• Getting Help with Understanding: Getting help to understand the transaction does not prevent the person from having the capacity to understand it.

General Property and Financial capacity assessment

Underpinned by the Mental Capacity Act 2005 (where there is an appointed LPA or EPA in place):

• Is the person able to understand the information relevant to the decision, and has this information been provided in a way that the person is most likely able to understand?
• Can the person retain the information for long enough to be able to make the decision?
• Can they use or weigh that information as part of the process of making the decision?
• Can they communicate their decision?

What if the individual lacks capacity to understand and sign the Deed of Transfer?

• Mental capacity: A person cannot sign the Deed if they lack capacity to do so. In these circumstances, an appointed Property and Financial Attorney (LPA) or an Enduring Power of Attorney (EPA) can sign on their behalf.
• Property and Financial Court-appointed Deputy: In the absence of an LPA/EPA, an appointed deputy can manage the property transfer.

Deed of Gift – Transferring a property deed for free

A Deed of Gift is used to transfer a property deed without monetary exchange. This legal document confirms the transfer of property ownership without any payment or exchange of money. It is a common process for estate planning, such as parents gifting homes to children.

This type of transfer is most commonly used when gifting property or land to family during your lifetime. As with a Deed of Transfer, the donor must have mental capacity to make the gift and may require a gifting mental capacity assessment to evidence capacity for the transaction being proposed.

The gift must also be evidenced to be given of their own free will and free from any undue influence. When gifting a property, the property must typically be free from debts such as mortgages.

A Deed of Gift is also used when wishing to add someone to the deeds, such as adding a partner or family member to your deeds.

What assessment is used for a Deed of Gift?

The assessment for a Deed of Gift is underpinned by the Re: Beaney 1978 test, which focuses on the following points:

Are they capable of understanding the deed when its general purpose is explained to them in full?

The donor should be supported to understand the matter in question and recognise that they can seek legal advice where necessary. They should also demonstrate an understanding of the gift and its potential impact on their estate.

Is the level of understanding required relative to the type of transaction?

It is important to ensure their understanding is relevant to the gift being proposed.

It is also important to note that the donor may not have a legal background and therefore, it is not expected that they understand the transaction as a lawyer.

However, they should be able to demonstrate their understanding as a layperson who recognises the gift and its consequences once given.

Undue influence

The assessor must be able to demonstrate that the donor has not been pressured into making the gift and is doing so of their own free will and without influence. To support this, the donor must be seen alone, without the recipient or those who might benefit from the gift.

Explanation of the gift

The donor should be able to explain their motivation for the gift and their relationship to the recipient, particularly where they are gifting property to family, friends or a charity.

Other considerations of the gift are:

Deprivation of assets

Gifts of any kind can be viewed as a deprivation of assets, particularly where the donor is currently in receipt of care or likely to require care in the very near future. If proven, the property gifted may still be taken into account by the Local Authority.

Inheritance Tax (7-year rule)

Inheritance Tax may have to be paid after your death on some gifts you’ve given. Gifts given less than seven years before you die may be taxed depending on who you give the gift to, their relationship to you, the value of the gift, and when the gift was given.

Gift with Reservation of Benefit

If the donor continues to reside in the property without paying full market rent to the new owner, the tax benefits of the gift may be invalidated.

Non-revocable

Once a Deed of Gift is given, it cannot be taken back.

Gifting property into Trust using a TR1 form

When transferring property into Trust, a TR1 form is also used to transfer the title deeds into the names of the appointed Trustees. Accompanied by, for example, a Declaration of Trust to update ownership with HM Land Registry.

In these instances, where there might be doubt regarding the donor’s capacity, a gifting capacity assessment would be necessary to ensure the TR1 form is legally binding.

Deed of Transfer and Deed of Gift capacity assessments at Thornton & Lee

At Thornton & Lee, we recognise the importance of getting things right the first time, particularly in often time-pressured situations such as finalising a property sale or transfer.

Our assessors are highly experienced in completing the capacity assessments explored in this article and understand the evidence required to ensure a robust, evidence-based report is provided for your legal representative or HM Land Registry.

We ensure the assessment process is seamless, supportive and enjoyable to maximise your understanding and engagement.

In the unfortunate event that the donor lacks the necessary capacity to complete the Deed of Transfer, we ensure all assessments are of a Court standard with the necessary evidence to enable the appointed Property and Financial Attorney, EPA or Court-appointed Deputy to proceed with a Deed of Transfer on the donor’s behalf.

Contact our friendly and knowledgeable team today to discuss how we can support you through the assessment process and assist you in moving forward.