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Buying a house for kids
Comments
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Er actually as their guardian I can do whatever I want with the money, including spending it on myself, a car, holiday etc. Luckily for my kids I want to invest the money for them. The choice of investment is down to whatever i think is best, at 3, 5 & 7 they cant make a decision about how to invest the money! It's no different than a more traditional long term investment. What should I do, leave the money in a .5 % a/c?
If the money was left to your children, then actually you can't do whatever you want with the money - even though you are their guardian.
If it was left to them, it's theirs. If you're looking after it for them, then there are a bundle of obligations that go along with your stewardship of the money. In brief, you have to do what a reasonably prudent person would do.
So, spending it on your own holiday is a no-no. If you did that, your children could sue you for the money once they hit 18.
Just a note on terminology - if you did set up a trust, then the "trustee" would be the person looking after the money (probably you). The beneficiaries would be the people on whose behalf the money was being looked after (probably your children). I know that's a pedantic point, but it might help avoid confusion when you seek advice.
To add to what another poster said - a child's income isn't always treated as his parent's for tax purposes. How the income is treated depends on where the money came from. (Edit: noh beat me to that bit - what s/he said!)0 -
Could you buy Premium Bonds? I'm fairly sure the return is at least 0.5% and you never know what they might win."If you think it's expensive to hire a professional to do the job, wait until you hire an amateur." -- Red Adair0
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It's not your money, you have no right to buy a house with their inheritance.My kids inherited just over 60k between them (theres 3 of them) a year ago and whilst we've moved house and are renovating our property i've completely ignored their money in a 0.5% account.
Recently i've been thinking i'd like to buy them a house (they are only 3, 5 & 7) so that hopefully by the time they are old enough to want to move out the mortgage would be cleared and they'd each own 1/3 of a house.
I've spoken to a couple of IFA's as I was thinking I could get a mportgage on the house in my name and manage the rental (and pay any shortfall in mortgage payments) on their behalf/for a trust etc but all the IFA's i've spoken to tell me that this isnt possible as it's a recognised tax dodge.
Am I being unrealistic to try and give my kids a leg up the property ladder for 20 years time or should I focus on more traditional investments, which seem easy to make on behalf of kids.0 -
rollnchips wrote: »It's not your money, you have no right to buy a house with their inheritance.
So what can the OP do? How is buying a house as an investment any different from putting it all in shares?
You could argue that leaving it in a 0.5% savings account would be far more negligent than investing in a house or shares.Remember the saying: if it looks too good to be true it almost certainly is.0 -
at the moment because of their age any income (interest) earned from their inheritannce pot is assessed against the parent for income tax purposes.
No it isn't. If the children inherited the money, it's their money. The fact that they are children is neither here nor there. Children pay tax in the same way as adults pay tax, there is no distinction in tax law.If the parent invests their money in property then the only way would be via a trust - that will need legal advice to set it up properly so that rental income and eventual sale is also dealt with
The £60k is already held on trust. There is no need to jump through any additional legal hoops to establish that which already exists.0 -
...I've spoken to a couple of IFA's as I was thinking I could get a mortgage on the house in my name and manage the rental (and pay any shortfall in mortgage payments) on their behalf/for a trust etc but all the IFA's i've spoken to tell me that this isnt possible as it's a recognised tax dodge.....
They're IFAs not lawyers or accountants. It would be a 'tax dodge' if the £60k was your money. But it isn't your money, it's the children's, and they don't understand that.
Having said that, I'm still don't not sure that you can do it. What you've got here is effectively a bare trust; you're simply holding the £60k until the children come of age, and I don't know whether you as a trustee have the power to borrow money. I'd ask a solicitor if I were you.0 -
No it isn't. If the children inherited the money, it's their money. The fact that they are children is neither here nor there. Children pay tax in the same way as adults pay tax, there is no distinction in tax law.
The £60k is already held on trust. There is no need to jump through any additional legal hoops to establish that which already exists.
The money isn't held in trust currently I'm pretty sure that means I have no obligation to them and have previously been advised I could use it to pay off my own mortgage as that benefitted my kids (I decided against this!) All irrelevant anyway as what I want to do is invest it for them in a solid investment with low to medium risk.
If asked in another way what would responses be:
I have 60k cash to invest for 15 years, is buying, renting out, paying off mortgage and selling in 15 years likely to be a wise investment?0 -
Was the money left to your children? If so the money belongs to them in whatever share the will specified. In effect, you are bare trustee for your children until they reach their majority.
It seems to me that you have neglected your duty as Trustee for your children in letting the money languish at this miserable interest rate.
At the very least you can open a "re"(bare trust) account for each child at the best rate you can find but in view of the long time scale you might prefer to open investment trust/OEIC accounts in bare trust for each of them. example here http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/
See http://www.hmrc.gov.uk/tdsi/children.htm
http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm in conjunction with http://www.hmrc.gov.uk/rates/it.htm
http://www.hmrc.gov.uk/individuals/savings-income.htm0 -
The money isn't held in trust currently I'm pretty sure that means I have no obligation to them and have previously been advised I could use it to pay off my own mortgage as that benefitted my kids (I decided against this!) ..
But you said...My kids inherited just over 60k between them ....
If your children inherited the money, i.e. they were named as the beneficiaries in the will, then it's their money, you do hold it on trust, and you do have an obligation to them0 -
But you said...
If your children inherited the money, i.e. they were named as the beneficiaries in the will, then it's their money, you do hold it on trust, and you do have an obligation to them
Yes the money was specifically left to them, yes I guess it is legally in a bare trust (although I didnt understand that term until now)for them and I have an obligation to them with this money. I think some people are missing my original point though. They are my kids, I provide for them, I already invest money for them monthly and am wholly committed to making the best investment possible for them with this inheritance.
My question was whether it is possible to to take out a mortgage in my name on behalf of their trust, thus avoiding any tax implications for myself and ensuring they receive 100% of the rental return. I would cover the mangement/repair costs and any shortfall in the mortgage if ever vacant (although my research suggest a 6% yield). In 15 to 18 years the mortgage would be clear, the house could be sold and the kids would have 1/3 of the value of a house each. The value of which will have tracked with the rest of the property market.
I dont see how this is any different from investing their money in a traditional savings account or shares. From responses though and further research it would certainly seem more common to just put it in a low to medium risk fund and forget about it until they are 21.0
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