Helping your children get onto the property ladder
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Helping a child or grandchild get onto the property ladder is much more common now than it has ever been before. The “Bank of Mum and Dad” has helped thousands of children get onto the property ladder. With the ever-increasing rise in property values coupled with cautious lenders looking for large deposits, it looks like helping your children get onto the property ladder is here for the foreseeable future.
As well as children buying a property to live in permanently, there are also the scenarios where your child attends college or university and needs term-time accommodation.
The three main options available are to buy a property in your own name, buy a property in your child’s name or create a trust that buys the property.
Buying another property in your own name
You might consider buying another property in your own name for your child’s use. There are a few things you need to consider. The first is that when you buy the property, if you already own your own house, you will have to pay Additional Dwelling Supplement (ADS) on the property you buy for your child. This comes in at 6% of the price and is payable in addition to any Land & Buildings Transaction Tax (LBTT) you would normally pay.
When it comes the time to sell the house, you may face a Capital Gains Tax (CGT) bill. How much you will pay in CGT will largely depend on the difference between the selling price and the purchase price and what capital improvements (if any) you have carried out during your ownership.
There may also be Inheritance Tax (IHT) implications should you own the property at the time of your death.
Buying another property in your child’s name
There is always a risk when you buy a property in your child’s name that once the property is purchased, your child can decide to do what they want with it.
They might sell it and keep the money. Alternatively, they might borrow against it and then default on the loan and the property could be repossessed.
Alternatively, if your child is married or in a civil partnership, should they divorce their spouse or partner could argue that the property is matrimonial property and they are entitled to a share in it.
Creating a trust and then buying a property
This is a two-stage process. The first stage is setting up a trust and transferring funds into the trust sufficient to buy the property. The second stage is for the trust to buy the property.
When the trust purchases the property, it will own it. This means you will have no personal tax issues or potentially no IHT issues. Any Capital Gains Tax will be met by the trust. The trust will, however, still have to meet any LBTT and ADS payments.
It is important to take professional advice
Whatever option you decide, it is important to take professional financial and legal advice. Speak to your solicitor about your options before you embark on helping your children get onto the property ladder.
Specialist Property Solicitors in North Berwick and Dunbar, East Lothian
Our solicitors specialise in all aspects of property law in North Berwick and Dunbar, throughout East Lothian and across Scotland. If you are considering buying a house for your child and are looking for advice from an experienced solicitor, please get in touch with us today.
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