How to Help Your Child Buy a Home

Wed, Jul 25, 2012

Financial Advice

As your children get older and become financially independent, it can be tough for them finding their feet. And watching your child struggling with his or her finances is not easy for any parent.

One thing that many young people struggle to do is get onto the property ladder. Buying a house is emotionally draining, as well as financially, and it is natural to want to be there for your child when he or she needs you. So, you may want to help when it comes to your child buying his or her first home.

There are several ways that you can help out, but beware…. depending on how (and how much) you want to help, the pitfalls can be considerable. You need to make sure you review all the available options, get advice from a property solicitor and choose the best approach for your situation, otherwise you, and your child, may face problems in future.

The options: Making a gift of the house

The “easiest” option is to buy the house outright. But this option is also, obviously, the most expensive, putting it out of reach for many parents. If you choose to buy your child’s house outright, be aware the gift is only exempt from Inheritance Tax (IHT) if you live for 7 years following the date of purchase.

If you do not have the financial means to do this, maybe you could give your child enough money to cover the deposit for a house. However, as with the first option, there may be IHT complications if you do not live for 7 years following the date of purchase.

But you are entitled to an annual exemption from Inheritance Tax for gifts up to £3000, which you can make use of here.  This exemption is carried forward, so if you have not used it in the preceding year, you can make a gift to your child worth twice this amount.

Helping with mortgage payments

Another option is to help your child out with his or her mortgage payments. You should seek professional advice if you choose to do this, as you can get 100% IHT relief if you can prove you are making regular gifts in excess of your day-to-day needs.

Acting as guarantor

Some parents act as guarantors on their children’s mortgages. This means that your child can borrow a larger sum, as the mortgage takes into account both your income and your child’s income. However, as with the other options, there are pitfalls here. If your child cannot meet his or her mortgage payments, your assets are at risk too.

Ultimately how you choose to help your child will depend on various factors, including age, your family and financial circumstances, and your eventual intention.

Further words of warning

The recession has proven that financial circumstances can change, sometimes without warning. You should consider whether you would still be able to afford to help if your financial situation changed for the worse.

And once you have given it, any money legally belongs to your child and cannot be reclaimed. If your child died, the money would form part of his or her estate, and would go to the beneficiaries of the will.

Lastly, ALWAYS get professional advice from a property solicitor before making any decision. These are big decisions to make, for you and your child, so you need to ensure that you are making the best one for both of you.

Author Bio
Andrew & Co are a specialist, independent firm of solicitors in Lincoln & Newark. Established in 1832, they work with individuals and corporate clients on a broad range of legal matters, including residential property, commercial property, family law and conveyancing.

 

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