Buying a House in Trust

xylophone

The savings are in a child savings account in his name, and my wife's name as being responsible (I'm not 100% how child savers work). 

Then the money belongs to your son and your wife is a bare trustee for him.

With regard to tax on these savings, notwithstanding that the capital and interest belong beneficially to your son, if you (or your wife) have provided these funds and they are outside a CTF/JISA, then  the £100 rule applies.

Below was published at the time when it was necessary to register for gross interest if a non tax payer but the principle remains the same.

https://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/families/babsi.htm

it would be possible for the bare trustee to purchase a property as bare trustee for the child -  any rental income would belong to the child but just like interest, because the parent (s) provided the capital to buy the property, if over £100 per parent it would be taxable on the parent.

And the beneficiary of a bare trust has the absolute right to access to and control of assets in the Trust when he turns 18 (16 in Scotland).

ld123098

lucypilates said:

ld123098 said:

Windofchange said:

My other half's mum did this for her about 5 years ago. It would have royally screwed us over on stamp duty when we came to buy our current house as we were then second property owners and therefore liable for the higher rate SDLT. Luckily for us the stamp duty exclusion came into play just before we completed, otherwise it would have meant an extra £13k of duty. This is possibly a consideration for you and your son? I do agree with you about the squandering it all part - I had a windfall when I was 19 and brought a fast car and a few holidays :-D

I did exactly the same, which is why I'm trying to be cautious now on his behalf. I know people think that you learn from your mistakes, but some mistakes are extremely costly and can put you back years, and his windfall is going to be substantially larger than mine. Cheers for the input

You are probably doing him a dis-service if you try to stop him experiencing 'failure' or 'mistakes' ... in fact, the earlier they get these lessons out of the way, the sooner they learn to make positive choices. Yes, it might be a large sum of money and you'll be gutted for him but he'll also be very aware that you don't trust him by your actions, which in turn, could make him less likely to make positive choices!! Sorry, i know this isn't a psychology forum but i've seen it all roll out in my own family and i'm having same fears for my own teenager ... but I KNOW that I have to trust that they will get it right in the end, for the sake of our relationship! Good luck - i'd be looking at Junior stocks and shares if it were me ..

I appreciate your time to comment, but regardless of other's opinions on parenting, I'm going to do my best to make sure he doesn't fritter away the windfall that he's going to get for a house deposit. Letting him blow it would be a pointless lesson to learn anyway, as he won't be in the position of having a windfall again until we die, which hopefully won't be soon. Letting him learn his own lessons, totally free from parental input, then having him spend the next 10- 15 years living at home saving for a deposit isn't my idea of good parenting. He'll only get this opportunity once, we aren't rich, and if trying to ensure he doesn't balls it up makes me a bad or over-bearing parent in other people's eyes, I'll happily accept that.

DairyQueen

I sympathise with you OP. I had a similar issue with saving for my nephews.

My parents and I have been saving regularly for them since the eldest (now 15) was born. For the first five years the money was held in child savings accounts (me as trustee) but the hassle of administering these led me toward ISAs. JISA was not available at the time so I simply cashed-in the account and transferred to an ISA in my father's name (I use my ISA allowance, he doesn't). 

One of our biggest fears is that that they will blow the cash if handed-over at the age of 18. We have been saving all of these years to give them something toward their futures, not for a few teenage jollies. The returns have been substantial since I invested in S&S (I manage the ISA), and, this way, we retain control of the funds.

So, yes, we will control when/how the money is spent, and I don't apologise for that. I know few teenagers who have the sense to spend sizeable sums wisely, and I doubt my nephews will be amongst the exceptions.

I would recommend JISAs but these vehicles allow unrestricted access by teenagers. If you/spouse don't use your ISA allowance/s perhaps you could consider our option as an alternative. Very tax efficient and you retain control.

Being a landlord is a complete pain-in-the-butt (been there too). Property is an illiquid investment and the tax and hassle are onerous but, if you buy well, at least the returns are likely to be better than cash.

SDLT_Geek

DairyQueen said:

I simply cashed-in the account and transferred to an ISA in my father's name (I use my ISA allowance, he doesn't). 

This does not sound right!

DairyQueen

SDLT_Geek said:

DairyQueen said:

I simply cashed-in the account and transferred to an ISA in my father's name (I use my ISA allowance, he doesn't). 

This does not sound right!

We are gifting the money. We are managing it in their best interests until such time as they are able to make best use of it. It is still invested on behalf of the children, and they will be the eventual recipients.

Seeing a decades-long savings plan frivolously spent 'does not sound right' to us either.  Indeed, we are so determined that it will be used as we intended that we will continue to control it until such time as either child has a need - uni fees/car/house deposit? - Definitely. Holidays? Partying with mates? - No chance.

theoretica

My parents arranged for me to have a talk with a financial adviser when I was 18 - without my parents present.  It was very useful and reinforced the lessons I had been taught growing up that money was to be thought about and planned and not just what let whatever happens happen. 

SDLT_Geek

DairyQueen said:

SDLT_Geek said:

DairyQueen said:

I simply cashed-in the account and transferred to an ISA in my father's name (I use my ISA allowance, he doesn't). 

This does not sound right!

We are gifting the money. We are managing it in their best interests until such time as they are able to make best use of it. It is still invested on behalf of the children, and they will be the eventual recipients. 

But had not the money already been gifted before?  How can it have been right to have transferred it to an ISA in your father's name?  An ISA is for one's own money, not trust money belonging to another!

Keep_pedalling

SDLT_Geek said:

DairyQueen said:

SDLT_Geek said:

DairyQueen said:

I simply cashed-in the account and transferred to an ISA in my father's name (I use my ISA allowance, he doesn't). 

This does not sound right!

We are gifting the money. We are managing it in their best interests until such time as they are able to make best use of it. It is still invested on behalf of the children, and they will be the eventual recipients. 

But had not the money already been gifted before?  How can it have been right to have transferred it to an ISA in your father's name?  An ISA is for one's own money, not trust money belonging to another!

Not only is it wrong, it is full of potential issues. If the child’s GF dies before  he reaches 18 it will form part of GFs estate so may be subject to IHT, and if the account is not specifically left to the GC in his will then it will be split among the residual beneficiaries.

if GF needs residential care then this account will be taken into account for self funding.

Keep_pedalling

ld123098 said:

getmore4less said:

ld123098 said:

TN1984 said:

I would also just add that I think the concept of 'getting on the property ladder' does not necessarily mean you need to hand over a property. Providing a sum of money for a deposit can achieve the same thing, and actually would probably be more useful as it would allow your son to buy a house of his choosing, without needing to sell another one first. Depending how it was all structured, there would potentially also be other factors to consider such as capital gains tax and potential loss of first time buyer incentives (whatever they might be in the future).

I was under the impression that he'd be taxed if I gifted him, which is where the idea of buying a house in trust for him came from, but it appears I was wrong, so it simplifies things a lot for me. 

I think you need to go back to very basics of  finances and tax here doing a lot more research.

Getting the basic taxes on gifts so wrong suggest quite a lot of gaps in your knowledge  and a long way to go before you even think about trusts.

Rather than simpler it may well have made it more complicated.
Why do you think it is simpler good idea to put up the new scheme in case that is also full of holes.


The need for further lending through a mortgage makes it even more complicated.

Unless you drop all "its for the kid" stuff  and just get into a letting business yourself.

Which comes with a whole new set of problems I suspect you are not aware of yet



 

If I can can gift him without gift tax, there's no need to buy the house in his name or with his money, I can just buy it in my name with my money, and gift it to him in a few years, so a trust isn't needed. That's why it simplifies things. Unless I've misunderstood what the other members have suggested.....

Most parents help their children get on the property ladder by gifting a deposit not gifting a house they bought years in advance. For a start buying your first house is a bit of a right of passage and you don’t really want your parents choosing house or location. When you gift it you are almost certainly going to be hit with a significant CGT liability that you will have to pay even though no money has been paid.

ratechaser

SDLT_Geek said:

DairyQueen said:

I simply cashed-in the account and transferred to an ISA in my father's name (I use my ISA allowance, he doesn't). 

This does not sound right!

No it's absolutely not right. If you are going to open a savings account for a child, and therefore take advantage of the higher interest rates that children's savings attract, then you MUST do so from day one on the basis that the money will be under the child's control the moment they turn 18.

if you don't want that - and I can sympathise with that position - then don't pay money into a child's account in the first place. But pulling it out after 15 years is fundamentally wrong, if not downright fraudulent.