Buying House for Children

GBP_2

I would like to purchase a home for my son and daughter as my mortgage is almost paid off. My daughter would live in house and we would ensure my son would benefit from the purchase

i would like to know how best to buy this 2 bed flat?

1) As second home with mortgage with me and hand over property to my children? If a lodger joins her to help cover mortgage costs, is there a way to reduce tax liability of this?
2) Is it better for her to take out mortgage with us a guarantors but she would struggle to get large enough mortgage for a 2 bed flat in Brighton?
3) What is the best way to buy the flat, allow her to live in it and rent a room out in terms of overall cost to her/us due to changes in taxation on rentable income etc and CGT

elverson

How old are they?

GBP_2

My daughter is 22 and working and my son is 19 and at university.

00ec25

option 1 - house is in your name, daughter is merely an occupier
SDLT - payable at the higher rate on purchase since you own it and it is an additional property for you

income tax - you own it so any rent paid by the kids to you is part of your own taxable income. You as owner would have costs to offset against the income so would pay tax on the net profit (you'll need to do a tax return if not already doing so)

lodger - if daughter lets spare bedroom to a lodger then that person s her lodger and she is a landlord for that person. rent paid by them to daughter is daughter's own taxable income but would fall within the £7,500pa (625pcm) tax free amount under the rent a room scheme so daughter would only pay tax on amount over that threshold. daughter would have to meet some LL legal obligations herself, eg: annual gas safety certificate (if there is a gas supply in the property)

tenant - if instead of taking a lodger as above, the spare bedroom is occupied by someone who pays rent direct to you, then they would be your tenant. They cannot be a lodger, instead they would have full tenant rights. Your daughter is out of the equation entirely and the legal

CGT - you own the property, you will face a CGT bill when you dispose of it (including for example giving it to the kids)

Inheritance tax - you own it so it forms part of your estate for IHT purposes. If you give it to the kids before your death, the gift falls within the 7 year PET rule

option 2 - As second home with mortgage with me and hand over property to my children?
I think (others can confirm) it will be near impossible to get a mortgage where the kids are the owners but not on the mortgage and you are on the mortgage but are not an owner. Lenders reject such situations as the owner has no financial liability to the lender so repossession very hard.

Much more likely lender will only give you a mortgage if you are also on the deeds as owner, in which case option 1 above applies

as the person with the mortgage, when the property is sold you will still face a CGT bill as you will have a beneficial interest in the property since some of the sales money comes to you to clear the mortgage with. Tax efficient planning for that scenario is a topic on its own

option 3 - Is it better for her to take out mortgage with us a guarantors but she would struggle to get large enough mortgage for a 2 bed flat in Brighton?

purely from the tax perspective yes, ownership in her sole name would be most tax efficient, but as you say the key is can she get a mortgage or not !

where does son fit into that option? Presumably your finances would not stand being guarantor to both daughter and son's separate mortgage if/when he gets his own place and needs help from bank of mum and dad?

ST1991

Can you instead gift them a deposit to put down on a 1 bed flat each?

GBP_2

this is most helpful and what i thought was the case. I do have a few more questions.


1) If I buy the house and in the future had it to my children, how can you do that and be exempt from any CGT as that is the aim... and its their gain and not mine

2) How can I find out about what level of mortgage she might get with me as guarantee or can I get joint mortgage with her and then sign over in some way so she then is full owner with my son

GBP_2

Our finances probably could act as guarantor for him too - issue is what extra mortgage she/he can get with bank mum and dad as guarantor - I have no mortgage myself in next 6 months!

I can also retire should I wish in 8 years and will have a good pension and a very large cash lump sum which could then largely remove 1 or 2 mortgages to children. The issue is tat is 8 years away and won't buy as god a property then as can be done now - hence happy to be extravagant knowing that this lump sum will deal with any issue if the mortgage were an issue in 8 years time

Tom99

[FONT=Tahoma, sans-serif]It sounds a very bad deal for your son. Is he expected to move in with his sister when he finishes university. If not how does he access your gift. If by that time he owns a share in the house then any other purchase even if he could get a mortgage would be subject to the higher stamp duty.

[/FONT] [FONT=Tahoma, sans-serif]I would keep the gift to each child separate.

[/FONT] [FONT=Tahoma, sans-serif]Could you remortgage your own house and gift each of them a deposit?[/FONT]

00ec25

GBP wrote: »

1) If I buy the house and in the future had it to my children, how can you do that and be exempt from any CGT as that is the aim... and its their gain and not mine

you would need to pay for legal and tax advice since passing wealth from one generation to the next without being taxed on it is obviously an area HMRC are rather good at stamping on

you could possibly do it if you can persuade a lender to allow you to pay a mortgage against a property held by a trust with your daughter (and your son?) as the beneficiary. That way as CGT is levied on beneficial owners (not on the legal owners) she would be exempt as it is her main home. Son would not be exempt unless he also lived there himself. However, the taxation of trusts is a highly specialised subject and certainly not one for a forum

I rather suspect there will be few lenders willing to do that. Good luck with your searches for an advisor

GBP wrote: »

2) How can I find out about what level of mortgage she might get with me as guarantee or can I get joint mortgage with her and then sign over in some way so she then is full owner with my son

ask a mortgage broker !

GBP_2

Thanks everyone for bringing me up to speed so fast.

So can I ask a further couple of questions:

1) It seems that it might be sensible for me to remortgage my current property and then gift each of my children a very large deposit to make affording a house a reality - I can pay the remortgage off with my lump sum in 8 years depending on how much I gift them

2) i realise that this has inheritance implications but imagine we will live more than 7 years and/or we will be leaving a good inheritance that tax on extra won't be an issue

3) Our concern about doing this is a reflection on current world in which our children may purchase a home using a large deposit from us and then separate and they then lose large amount of money if house split between couple and our large deposit to them is divided... realise it sounds strange, but if that were to happen within a few years, it would be award. I hear that there is an increasing use of pre-nuptials, so imagine that might be the way forward but perhaps gifting child deposit and then saying that this must be in pre-nuptial sounds dreadful, but if one is talking of 100-150K deposit, it's not a small amount

trailingspouse

As both of your children are adults, I would be asking them what their plans are. Does your daughter want a 2-bed flat in Brighton? Does she want to have a lodger? What will your son be doing after uni?

It sounds like a really nice thing to do - but there are many reasons why I wouldn't do it myself.
1) the kids might not want to be tied down at this stage in their life
2) they may meet someone/get another job which means they don't want to live in Brighton anymore
3) they may actually want to stand on their own two feet
4) you might need the money yourself - if you are just retiring in 8 years' time then you are still quite young.

If you can afford it you could perhaps gift your kids a deposit on a house when they actually want to buy a house. Let them decide for themselves when that might be.