tax - specialist tax advice - family joint ownership
It is quite common for clients - typically reasonably successful - to want to help their children buy a first property to live in.
There are some significant issues if they just give the money (say £50,000) to the child in order to buy the property.
- the property could be sold and your child would keep your money
- you might need the money in the future - e.g. to fund health care
- your child might become more wealthy than you in the future
- there is an expectation that you will do the same for other children
- your child might get divorced and lose half the value of the gift.
So we have packaged together some ideas to give a cost effective service.
Buy the property in the joint names of the parents and children
Parents provide equity - the balance of funds on mortgage
Joint ownership agreement - setting out the rules for ownership, often splitting the property into 100 shares to allow easy transfer.
A plan over time that the child will buy out the parent
Arrangements that any rent charged to third parties is payable to whoever is paying the mortgage to avoid tax charge - normally the child.
This service is an example of how we can bring together tax, legal and financial planning ideas to produce a solution for our clients.
quick checklist
A popular scheme to help your children buy their first home.
Joint ownership until your child can buy you out - or you can afford to gift the property to them.
Retain the flexibility to get back your money whenever you need it more than your child.
Take advice before you buy.
investment considerations
Don't forget that the property can go down in value. Agree in advance who will take the benefit.
Agree in advance who will get the increase in value if the property is sold.
The rates of interest on your mortgage could vary significantly based on whose name the mortgage will be in - review all your options. Take advice.
inheritance tax
If you reach the point when you know that you will never need the money then consider gifting the shares to your child so that they are not part of your estate. If you survive by 7 years then you have saved IHT at 40% of the value.
If you might ever move into the property then great care needs to be taken with IHT planning.
income tax
Always be careful that if any rent is to be received that it arises to the person who is paying the mortgage - otherwise one person may be paying tax & another has a mortgage with no way of claiming tax releif on the interest.