According to figures released by Legal and General, more than half of the over 55’s are helping their children or grandchildren onto the housing ladder.
Families are dipping into savings and even taking further borrowing on their own properties to top up that deposit and help fund the perfect home. It is likely this trend will continue with mortgages being trickier to come by.
I have noticed I have been approached more frequently by clients who are in this position, and I am asked to advise on the best way of doing it.
There are a number of ways that you can help your children get onto the housing ladder, we will look at some the options here.
Outright gift are usually favoured by mortgage companies and it would mean that land tax and capital gains tax is assessed at the rates and rules applicable to your children, not you. A gift can be a good inheritance tax planning. On the current rules if you make the gift and survive 7 years that gift reduces the value of your estate. However, outright gifts may not satisfy you if you are looking to protect the money you have gifted from divorce, bankruptcy etc. and you may need the money back.
A loan should be formally documented in the form of a legal agreement, and better still, secured against the property. You will need to decide the terms of the loan, such as when you expect the money back, monthly repayments, interest, and what happens if you or your borrower dies. Again this method of protecting your money means that the land taxes and any capital gain is assessed on your child, not you. Your child will need to check if their mortgage company is aware of the loan and take account of any requirements they may have.
Joint ownership may be an option because this will protect your investment, as the property would be owned legally by you both. The drawback here is that stamp duty will be charged at the higher rates if you own your own home, and there could be capital gains tax consequences when you sell this property.
A Declaration of Trust can be used to record your interest in the equity of the property. This is suitable if you intend to retain an interest. As with the loan scenarios, the position with your child’s mortgage company will need to be checked. A declaration of trust could still mean there are land tax and capital gains tax consequences, which you may wish to avoid
Deciding on the best method may depend on:
- Your own financial position and estate planning goals
- How much you are looking to ‘gift
- If you are lending, when and how you expect the money back
- Your child’s circumstances, mortgage requirements and affordability
- Impact on other children or family members
- The above mentioned tax implications
When considering lending or gifting money, it is important to take financial advice from a qualified financial adviser who can help you weigh up the affordability and the tax planning considerations.
Not only that, but it is also important to consider how this affects your Wills.
Your child should also consider what they can be doing to protect any gift you have made them. For example, if they are buying jointly with a partner, moving someone in or getting married maybe a declaration of trust, cohabitation agreement or prenuptial agreement is sensible.
If you would like to know more, please do not hesitate to get in touch by calling 01352 860 890 or by emailing email@example.com