How can I help my child get onto the property ladder?

Amy Lane, solicitor in the Wills, Estates & Tax Planning team answers questions in The Times of Tunbridge Wells about parents helping their children onto the property ladder.

There are a few options for those parents or grandparents who want to help with a property purchase:

1. Give them money towards the property;
2. Loan them money; or
3. Purchase a property in your name for them to live in.

What are the pros and cons of the first option?

There are currently no limits on the amount you can give to your child but the rules on that may change. In addition, in comparison to a loan, a gift to your child would not reduce the amount they could borrow if a mortgage was required. There are also potential inheritance tax benefits to your estate on death by making a lifetime gift (although it depends on your circumstances).

The cons are:

• The money is then an asset of your child’s estate and would pass under the terms of their wills. It’s imperative they have a will, otherwise any planning done for inheritance tax reasons could be negated. Gifted money is also in their estate for divorce and bankruptcy;
• Once you have given the money away, it cannot be recalled back by you should you need it in the future.

What about a loan agreement?

Loans are quite often the default parents consider when making provision, as it allows the money to be recalled during the parents’ lifetime. Loan agreements should be documented in writing making the terms of the loan clear. For loans carrying interest, the agreement should be drawn up by a firm with the correct FCA approval.

Parents should give thought as to whether they realistically expect the loans to be repaid by their child during their lifetime and, if not, how the loan will be dealt with on your death.

And if I wanted to buy a property for them?

The upside of doing this is that you retain control of the asset and any growth in value is in your own estate (although that can be a negative too, for tax reasons).  The downsides to this option include the following:

• If you already own another property, the higher rate of stamp duty would apply;
• On future sale, capital gains tax may be payable; and
• You ought to consider whether your will needs to be amended if, for instance, you would want your child to receive that property on your death with a compensating amount equal to the value given to other children.

You could also contribute funds towards the property, so you acquire either a fixed or floating share in the property (although this can be difficult if your child requires a mortgage).
In addition to the above, provision could be made through a trust but this falls outside the scope of this Q&A. Please note, the above is a generic overview and specialist advice should be sought tailored to your circumstances.  If you have any questions about the above please get in touch at info@ts-p.co.uk.