Invest my kids inheritance in property

Clench999

Hi
My kids have recently inherited some money. Rather than go down the usual savings route I was thinking of buying a flat and renting it out. I'm not sure if this is possible or the bed way of doing it. Can I buy a property in their name? Would it need to be set up as a trust?
Any advice would be appreciated.
Thanks

mjdh1957

If they are under 18 they certainly can't own property in their own name so it would have to be a trust.

Lots of posts on here about buy-to-let investments so do some searching. It's not necessarily the gold mine that it used to be.

yoyoegg

Any advice would be appreciated.

You'll need professional advice on trust tax planning, IHT etc. An obvious issue with BTL is timing of the sale to release funds for uni education etc. you may be trying to shift at the bottoms of the market.

HAMISH_MCTAVISH

Clench999 wrote: »

Hi
My kids have recently inherited some money. Rather than go down the usual savings route I was thinking of buying a flat and renting it out. I'm not sure if this is possible or the bed way of doing it. Can I buy a property in their name? Would it need to be set up as a trust?
Any advice would be appreciated.
Thanks

I'm all for people buying a BTL property so their kids can have a place when they grow up. It's often a smart way to have someone else buy them most of an asset and beat inflation.

But that applies to when you're in control, buying yourself, and able to run it efficiently without involving trustees.

Whereas with your kids inheritance, it would get more complicated and less efficient.

It can be done, however it's a lot of hassle. It would almost certainly need to be done through a trust, and the costs of ongoing administration might put a real dent in returns.

I'm usually quite pro-BTL investing in general, however in this case I'd suggest there might be better ways to invest your kids money.

googler

What will your legal position be if your/their 'investment' turns out to be worth less than its current value when they come of age?

Property values can go down.
Tenants can treat property with less respect than you hope for.
etc

19lottie82

what happens, if when your children come of age, one wants to sell, but another one doesn't? could get messy?

fairytinkerbell

I'm having abit of trouble as my inheritance is a house and me and my sibling both own it, sibling doesn't want to sell but i do. they have to release the funds to buy me out which has caused arguements. best off leaving in a savings account or isa.

princeofpounds

What will your legal position be if your/their 'investment' turns out to be worth less than its current value when they come of age?

Presumably the money is already held in some kind of trust structure, either formally or informally.

Whilst there's a lot of law that stops trusts being run unlawfully, there isn't much that stops them being run stupidly. So in this instance I don't think there is too much danger of that sort of thing.

OP, a lot depends on how old your children are. If they are in their mid-teens and will have access to the money in a couple of years you might as well put it in something simple and let them make decisions later.

If on the other hand they are toddlers, putting it in a bank account is likely to be a poor move, as inflation will eat away at the purchasing power over 15 years. You should be looking at real investments (like property or stocks or inflation-linked certificates)

Personally I would look at investments that required less involvement that a BTL flat in that situation. A global equity index tracker, or a real estate investment trust, or something like that.

Particularly if the money is not enough to buy a property outright and you want to get mortgage debt involved, which raises the risk of the investment and might not be appropriate.

GDB2222

There's been a load of cobblers posted here about trusts, I'm afraid. If the money has been gifted to the kids and they are under 18, you can hold it in a bare trust. That means that you can invest it in property for them, held in your name but on their behalf.

As with any property investment, you'll need to keep accounts / have a separate bank account/ it's a shed-load of work etc. The kids will each have a personal tax-free allowance to set against rental income, so it is very tax efficient. The main, in fact probably the only, downsides are that a) they will get the money at age 18, and b) you will need to complete tax returns for them each year - unless HMRC become fed up with receiving returns each year with no tax to pay.

I speak from experience.

Fire_Fox

Don't buy a flat unless it's brand new or nearly new and the rental yield is very good. You will have to pay service charges, buildings insurance and ground rent out of the rental income, if there are any major works the freeholder can make an additional levy so you could need to find thousands (occasionally tens of thousands) of pounds for repairs and maintenance. Only buy property if you are going to hold it for ten years or more, property is not necessarily an investment in the shorter term look at the last ten years in some areas they have not increased or even dropped.

xylophone

I think that you need to be very careful. Presumably you are already holding this money in bare trust for each child.

Remember that if this is the case, each child has the absolute right to call for income and capital at the age of 18 (16 in Scotland).

If you choose to invest this money on their behalf in an illiquid asset, and one child requires the money at the age of 18 what will you do?

Are you prepared to take on all the responsibilities of a landlord?

Will the child/children want this at the age of 18?

I would take the advice of a professional, particularly as the sum of money appears to be considerable.
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http://www.osborneclarke.com/en/sitecore/content/en/home/publications/services/tax/articles/the-powers-and-duties-of-bare-trustees.aspx
http://www.hmrc.gov.uk/trusts/index.htm