A place of their own
Rocketing property prices mean that parents are increasingly giving their children a leg-up onto the property ladder. Buying agent Camilla Dell of Black Brick has some inside advice.
In London, where the average asking price for a property is now £624,953, it would take the typical single first-time buyer 46 years to save a deposit, assuming they saved 22% of their income for a 15% deposit.
This is, predictably, forcing more and more young people into rental accommodation - recent research by PricewaterhouseCoopers estimated that 60% of Londoners will be renting by 2050 - so, many adult children are forced to turn to the ‘Bank of Mum and Dad’, and a growing number of parents plan to buy property for infant children. But there are numerous options to consider:
The most straightforward assistance is, of course, giving your child cash towards a deposit. Assuming the donor survives for seven years, such gifts do not incur Inheritance Tax.
Alternatively, parents can help their child borrow larger sums by acting as the guarantor of the mortgage, either using parental income, a charge on the parental home or by using a savings account deposit.
Buying early on their behalf
Other parents are buying property for their young children – whether they are toddlers or teenagers – partly as a hedge against ever-rising prices. However, the picture is complicated by changes to the rules on tax relief relating to buy-to-let income and the new Stamp Duty Land Tax surcharge of 3% on buy-to-let investments.
Take it on trust*
Buying a property through a trust (other than a bare trust) has the advantage of making it more difficult for the child to sell the property – and potentially squander the capital. However, this approach has various Income Tax, Capital Gains Tax and Inheritance Tax disadvantages. If it is possible for the child’s grandparents to make the gift, any rental income would be taxed at the child’s marginal rate while he or she is a minor (rather than their parents’ rate), and there is an additional Inheritance Tax benefit from skipping a generation when passing on assets.
The most important consideration, of course, is finding the right property. What are the prospects for capital appreciation in the area? How likely is it to be insulated from a market downturn? How easy will it be to sell on in the future? If your child is still very young, how easy will it be to rent out?
In addition, the London property market is extremely complex, as is the process of getting your children on the property ladder. It is therefore crucial to get the right legal, financial and purchasing advice at every stage.
*Source: Maurice Turnor Gardner
Managing Partner and Founder
Black Brick Property Solutions LLP
Camilla Dell has worked in the London property market since 2002. Before setting up Black Brick in 2007 Camilla was an agent with Foxtons and Knight Frank.
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.