Buying a Flat for Student Daughter To Live In

JamboWeb65

Hi, first post and just looking for some advice.

My daughter is about to move to Dundee to start her second degree. 

This time around we are looking to buy a small flat for her rather than pay rent as we feel that is just like spending money and it disappearing into the ether.

We have savings and money through a lump sum pension and are aware that its likely that as this would be our second property, we will have to pay second property Land Tax (stamp duty)

I'm just looking for advice, particularly on any pitfalls that we should avoid or any recommendations anyone can give.

Thanks    

Brie

Will you be setting yourself up as a landlord with your daughter as tenant?  Are you setting any rules about how she runs the place, who lives there, if she must leave if you decide to sell etc?

user1977

She could buy it in her name with your money (you could set it up as a loan if you wanted), which would save on the LBTT (assuming she doesn't also own a property!).

lika_86

Is this a small flat just for her? You mention it's a second degree but I wouldn't rule out the possibility that she will find friends she wished she could move in with after first year.

Given the second home SDLT, costs to buy, service charge and ground rent, costs of kitting the place out and maintaining it and costs to sell, at that point it's probably cheaper for her to rent.

user1977

lika_86 said:

Given the second home SDLT, costs to buy, service charge and ground rent, costs of kitting the place out and maintaining it and costs to sell, at that point it's probably cheaper for her to rent.

Not SDLT or ground rent, it's Scotland...(and "service charge" tends to be less extortionate than in England).

jennifernil

We did this for our DD back in 2003.  We bought in her name and were guarantors on the mortgage,  but she was initially on a 5 year degree, in Glasgow.

As it happened, she went on to do a PhD, so was there for 7 years, then after getting a job was there till 2012.

She still has the flat as she chose to rent it out, and we now have her mortgage, to give her flexability.

She pays us monthly, we have a charge on the property, and will repay the capital when she sells it.

JamboWeb65

Hi, thanks already for all the comments - really helpful.

The plan is instead of renting for 4 years, we buy and then sell in 4 or 5 years.  The money is part of my pension lump sum so I'll need it back. 

We have been in the situation where for various reasons she has been renting in Edinburgh, whilst she did her first degree for approx 5 years, so around £50k already spent in rent.  We would rather avoid the rent and instead forfeit any interest for savings.

I suppose what we are thinking is no more rent, my daughter will have a base (her degree may mean travelling to other areas of Scotland) but if there is a legitimate way of avoiding Land Transaction Tax, Council Tax etc

Thanks again   

      

hazyjo

The main worry for me would be her switching courses or giving up. Happened to several friends' children in the last couple of years. Try to consider every eventuality.

silvercar

jennifernil said:

We did this for our DD back in 2003.  We bought in her name and were guarantors on the mortgage,  but she was initially on a 5 year degree, in Glasgow.

As it happened, she went on to do a PhD, so was there for 7 years, then after getting a job was there till 2012.

She still has the flat as she chose to rent it out, and we now have her mortgage, to give her flexability.

She pays us monthly, we have a charge on the property, and will repay the capital when she sells it.

I thought lenders weren’t keen on charges on property and that gifted deposits had to be gifts not loans.

zagubov

silvercar said:

jennifernil said:

We did this for our DD back in 2003.  We bought in her name and were guarantors on the mortgage,  but she was initially on a 5 year degree, in Glasgow.

As it happened, she went on to do a PhD, so was there for 7 years, then after getting a job was there till 2012.

She still has the flat as she chose to rent it out, and we now have her mortgage, to give her flexability.

She pays us monthly, we have a charge on the property, and will repay the capital when she sells it.

I thought lenders weren’t keen on charges on property and that gifted deposits had to be gifts not loans.

A few posters in the past seem to have arranged this kind of deal before, including some big-name lenders. Maybe a mortgage broker could advise (I'm not one!).
OP, if your daughter wants to let out rooms to lodgers, don't forget to advertise in nearby St Andrews.

_Penny_Dreadful

JamboWeb65 said:

 but if there is a legitimate way of avoiding Land Transaction Tax, Council Tax etc

The only way to avoid paying the Additional Dwelling Supplement (ADS) is to not purchase an additional dwelling.  Presumably you already own your own home so if you buy this property that's an extra 6% on top of the regular LBTT.  Then when you come to sell the property will be subject to Capital Gains Tax (CGT).  As your daughter would be occupying the property she would be liable for the council tax but as a full time student the council tax bill would effectively be zero unless she started sharing with people not in full time education.

I don't know if your lump sum is enough or if a mortgage would be required to buy somewhere in Dundee.  Perhaps it is possible to arrange the finances such that your daughter buys the property, as she wouldn't be liable for the ADS or CGT, with money that you lend her but you would then be relying on her selling or refinancing in 4/5 years so that you can get your money back.  Also, property is a long term investment and there is a risk that if the property is only owned for 4/5 years that renting might have worked out less expensive.