Giving money to my son to buy a house.

VXman

My son is 31 and living in shared rented accommodation. We'd like to help him get his own house. He lives in a very expensive part of the country and is not a high earner but  is sensible with his money, even so he is unlikely to be able to get a deposit in the next 5 years, if ever. We are retired with a reasonable pension and other savings/investments.

So options as I see it are:

1. We gift him the full cost of the house (£300K) and he gifts us the equivalent of the rent each month which we would treat as payments towards the £300,000 - eventually for him to own it. Of course this route requires a lot of faith and trust in him and the hope our relationship doesn't deteriorate over time. I don't see that as a problem but I guess we need to take into account future developments like what if he got married (Single at the moment). Also might need to think about what would happen if we both died. For him to just take the house is possibly unfair on our daughter who is buying her own. I am aware should we die he would be liable for CGT (edit - sorry meant IHT) for 7 years I believe?  Is it possible to make a arrangement like this legal? and write it into our will? Any issues tax wise with giving and receiving money like this?

2..For us are to buy the house and rent it to him with knocking the rent off the value over time and then gifting it too him. However this would presumably incur us Stamp duty as a 2nd home and possible tax on the rental income.

3. Us giving/loaning him a deposit for him to get a mortgage is just to complex I think. Also, he is self employed/freelance so getting a mortgage is difficult.
Any thoughts/advice?

Are there any issues with option 1  that I haven't though about?
I would add that while we can afford to do this we would be reducing our investments/savings considerably which would limit what we would like to do with our retirement. Hence wanting some income coming back in -at least for 20 years or so. 

greatcrested

VXman said:

1. We gift him the full cost of the house (£300K) and he gifts us the equivalent of the rent each month which we would treat as payments towards the £300,000 - eventually for him to own it.

That's not a gift- it's a loan!

Of course this route requires a lot of faith and trust in him and the hope our relationship doesn't deteriorate over time.

You could place a Charge on the property title just as a bank does when they loan money for a property purchase.

I don't see that as a problem but I guess we need to take into account future developments like what if he got married (Single at the moment).

If he married, the Charge would remain. If he divorced and his wife forced saleof the property the loan would have to be repaid to you before the outstanding equity was divided between them.

Also might need to think about what would happen if we both died.

The loan would remamin and would be repayable to your Estates, subject to Inheritance Tax (if relevant) and the distributed as per your wills.

For him to just take the house is possibly unfair on our daughter who is buying her own.

If it's a loan, it's not unfair, as it would be repaid, either via the monthly payments (not rent - loan repayment), or when he sold the property, or on his death.

I am aware should we die he would be liable for CGT for 7 years I believe?

No - that applies to Inheritance Tax on a gift (not a loan).

Is it possible to make a arrangement like this legal? and write it into our will? Any issues tax wise with giving and receiving money like this?

No difficulty but get a solicitor to draw up the loan agreement and place the Charge on the property.
2..For us are to buy the house and rent it to him with knocking the rent off the value over time and then gifting it too him. However this would presumably incur us Stamp duty as a 2nd home and possible tax on the rental income.
Yes, additional 3% SDLT.

Plus you'd be landlords, with all the costs, obligations etc that goes with that. Including paying tax on the rent.

See link below.

3. Us giving/loaning him a deposit for him to get a mortgage is just to complex I think. Also, he is self employed/freelance so getting a mortgage is difficult.
He should see an independant mortgage broker. If he can't get a mortgage, then this is obviously a non-starter. If he can, then you could gift or loan the deposit.

Loan - see 1) above

Gift - Inheritance Tax if you die within 7 years, plus unfair on daughter

I would add that while we can afford to do this we would be reducing our investments/savings considerably which would limit what we would like to do with our retirement. Hence wanting some income coming back in -at least for 20 years or so. 

* You need to consider seriously your own needs, especially if there's potential for Care or Care home support in future.

Would you additional investments make you ineligible for Local authority funding?

Gifting money can be considered 'deprivation of assets' so even if after the gift your assets were below the LA threshold (£17K ish??), the LA would take the gift into account.

* if you bought, and rented to him, would you evict if he defaulted on the rent? Given that you 'need' the income? But he's your son.....

* If you loaned him the money and placed a Charge on the property, and he defaulted on the monthly repayments, would you repossess the property (just like a bank when a borrower fails to pay the mortgage)? But he's your son....

As for being a landlord, see my posts:

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

dimbo61

You Son needs to go and see a Whole of market  mortgage broker and find out how much he can borrow.
Now  you don't mention helping your daughter ? 
Would it not be fair to help both your children ?
Has your son saved any money for a deposit ?
Has your daughter saved for a deposit.
Now the Yorkshire building society offer an offset mortgage range with friends and family offset accounts.
You could gift a lump sum to both children and also set up offset accounts.
Say you gift £50,000 to both your daughter and son.
They get offset  mortgages with YBS and you open offset accounts with both mortgages.
Put £100,000 into each account and your daughter and son are saving interest every month.
You can tap into the money in your account whenever you want.
You can gift your son or daughter £3,000 in any tax year.
If you did not gift £3,000 last year you can back date and gift £3,000 for 2019/2020.
Therefore you and your Other half can gift £6,000 to each child and another £3,000 after April 6th 2021 

steampowered

Personally, I think Option 3 is the best option - gift him the deposit he needs to get a mortgage.

That means you still keep the bulk of your cash for your retirement - while helping your son on the property ladder. This option also helps your son be independent - he will build up equity which gives him the flexibility to move to a different property in future if he wishes to do so.

Self-employed people can still get mortgages. Sure it can be a bit more difficult but its possible. Your son should speak to a mortgage broker to find out what options he has.

Option 2 (you buy the property in your own name) is a bad idea due to the higher rate SDLT you would need to pay.

Option 1 (you loan him the money for the property, and he repays the loan over time) is also possible. You could have a formal loan agreement written up. However, it starts getting messy if he wants to sell up in a few years time. It also means less options for you in your retirement.

You mentioned concerns if you die within 7 years. That is a concern in relation to inheritance tax. However, the fact that you would be using most of your retirement savings if you gifted £300k - suggests your estate will be within the nil rate band for inheritance tax anyway - so it is a non-issue.

VXman

dimbo61 said:

You Son needs to go and see a Whole of market  mortgage broker and find out how much he can borrow.
Now  you don't mention helping your daughter ? 
Would it not be fair to help both your children ?
Has your son saved any money for a deposit ?
Has your daughter saved for a deposit.
Now the Yorkshire building society offer an offset mortgage range with friends and family offset accounts.
You could gift a lump sum to both children and also set up offset accounts.
Say you gift £50,000 to both your daughter and son.
They get offset  mortgages with YBS and you open offset accounts with both mortgages.
Put £100,000 into each account and your daughter and son are saving interest every month.
You can tap into the money in your account whenever you want.
You can gift your son or daughter £3,000 in any tax year.
If you did not gift £3,000 last year you can back date and gift £3,000 for 2019/2020.
Therefore you and your Other half can gift £6,000 to each child and another £3,000 after April 6th 2021 

I knew this might bring up other issues of fairness. Of course everyone is different. Yes we have helped our daughter with the deposit for her house and for her wedding and as yet we haven't helped our son. The way I see it is each have different needs. My daughter is much better off and has a fiance too. I feel it's about need. And this wouldn't be a gift really - more of a loan.

As for £3000  year, that's only the limit without the possibility of inheritance tax. Otherwise there is no limit.

Son has about £20K in savings but needs some for a rainy day being self employed. This leaves not a lot for a mortgage and the repayments on £300K would be unmanageable.
Interesting thought about offset accounts.

VXman

greatcrested said:

* You need to consider seriously your own needs, especially if there's potential for Care or Care home support in future.

Would you additional investments make you ineligible for Local authority funding?

Gifting money can be considered 'deprivation of assets' so even if after the gift your assets were below the LA threshold (£17K ish??), the LA would take the gift into account.

Yes thought about that but both being healthy and 'only' late 50's I wouldn't expect this to be an issue in the foreseeable. Surely local authorities can only go so far back and you'd have to already be aware of health issues.

VXman

steampowered said:

Personally, I think Option 3 is the best option - gift him the deposit he needs to get a mortgage.

That means you still keep the bulk of your cash for your retirement - while helping your son on the property ladder. This option also helps your son be independent - he will build up equity which gives him the flexibility to move to a different property in future if he wishes to do so.

Self-employed people can still get mortgages. Sure it can be a bit more difficult but its possible. Your son should speak to a mortgage broker to find out what options he has.

Option 2 (you buy the property in your own name) is a bad idea due to the higher rate SDLT you would need to pay.

Option 1 (you loan him the money for the property, and he repays the loan over time) is also possible. You could have a formal loan agreement written up. However, it starts getting messy if he wants to sell up in a few years time. It also means less options for you in your retirement.

You mentioned concerns if you die within 7 years. That is a concern in relation to inheritance tax. However, the fact that you would be using most of your retirement savings if you gifted £300k - suggests your estate will be within the nil rate band for inheritance tax anyway - so it is a non-issue.

Thanks, some good points there.
Regarding giving the deposit - I just feel that the amount needed (to make it so the mortgage repayments are affordable for him) would make the amount to big for a 'gift' (As in I wouldn't want to gift him that much!)

[Deleted User]

VXman said:

greatcrested said:

* You need to consider seriously your own needs, especially if there's potential for Care or Care home support in future.

Would you additional investments make you ineligible for Local authority funding?

Gifting money can be considered 'deprivation of assets' so even if after the gift your assets were below the LA threshold (£17K ish??), the LA would take the gift into account.

Yes thought about that but both being healthy and 'only' late 50's I wouldn't expect this to be an issue in the foreseeable. Surely local authorities can only go so far back and you'd have to already be aware of health issues.

There isn’t a limit on how far back local authorities can go. 

Option 5 sounds best. A private mortgage between you and your son. It’s tax efficient and cuts out the nonsense of 1 with all the pretend gifting. 

VXman

Lover_of_Lycra said:

There isn’t a limit on how far back local authorities can go. 

Really? So if I blew all my money in my 60's on lots of expensive holidays and a nice car or two would that be considered 'deprivation of assets' in my 70's.   Where would they draw the line. Everyone has different expectations/standards of living.

Lover_of_Lycra said:

Option 5 sounds best. A private mortgage between you and your son. It’s tax efficient and cuts out the nonsense of 1 with all the pretend gifting. 

Interesting - I didn't mention option 5 but 'private mortgage'. What is that? That would be a legal agreement between us?

[Deleted User]

VXman said:

Lover_of_Lycra said:

There isn’t a limit on how far back local authorities can go. 

Really? So if I blew all my money in my 60's on lots of expensive holidays and a nice car or two would that be considered 'deprivation of assets' in my 70's.   Where would they draw the line. Everyone has different expectations/standards of living.

Yes really. 

Petriix

I strongly recommend finding out exactly how much he can borrow, even if it's only 25% of the property value, and then gifting him the rest. He will be paying whatever he can afford on his own mortgage. If he can afford more then he could make an informal gift back to you each month. Any other option is unnecessarily complicated and onerous.

If you have reasonable pension income then you probably don't need the cash in the bank. You can't spend it when you're dead and you will be able to share in the joy that it brings him while you are still around to enjoy it.

If you're worried about fairness then consider adjusting your wills to ensure that your daughter gets a bit more later. However, life is not 'fair' and has not presented your son with the same fortune as your daughter so don't feel as though they should both get the same just for the sake of it.