Parents buying somewhere for DD - is it a good idea

[ctownsie]

Hi, mainly looking to see if this a good idea or not as I'm clueless.
DD is 18, in her first year of med school in London - 6 year course.
My parents recently sold their London home the area went through a lot of gentrification in the time they lived there (over 50 years) so the house ended up selling for over 2 mil.
They relocated, downsized and have a lot left to play with. They've topped up their already pretty good pensions.
I have 2 kids and im an only child. DD18 and DS15.
My parents are now wanting to buy DD a flat in London that she can share with friends. They've found a 4 bed they and DD like near uni and friends, for a little over a million.
They are planning to put down a deposit of £500,000 or so, this will be all of DDs inheritance. Then she can rent the other 3 rooms for roughly £1250-£1350. My parents said they will deal with all the landlord related tasks. They are 74 and 75 so I'm not sure that's the best idea but ok.
DD says she already has 2 friends who would be able to stay there.
My parents think this is a much better alternative to DD looking for somewhere to live for the next 5 years.
AIBU to be worried this might not be the best idea? Are there any flaws they might not have considered?
They'd still have money left should DS want the same though DS hates London and would never go to London again if he would so I doubt he would need somewhere so expensive.

Just to be totally clear - £3k per person is the most capital you can give to one person. You can give away as many gifts of £250 as you like but not £250 ion top of the £3k so the maximum for one grandchild is £3k from each grandparent . The £250 also covers items bought for people. If they give capital to each grandchild equally then it's £3k per grandchild and they cant gift any capital (above £250) to their children.

You can gift capital. It’s just potentially included in the IHT pot. A potentially exempt transfer will be liable for seven years but with tapered relief applicable annually. So if they live for seven years after transfer it’s an exempt transfer.

This is how the rich avoid IHT 😉

OK, I wasnt totally clear. 3k is what you can give without inheritance tax being potentially due. These are not young people and there is no taper for the first 3 years. They do need to start, urgently (before the next tax year) , giving away some of the money they dont think they'll need for care home fees. I believe the taper operates on tax years so if they leave giving away money until the next tax year they could die nearly 4 years later and their beneficiaries would still lose a lot in tax.

Your parents are so generous and smart, aren’t they. Your daughter is incredibly lucky!

1. your daughter doesn’t have to live there forever. Even if she sells in 5-10 years, she will have a leg up in life, that will have a profound impact on her future.

2. I’d get an agent to manage the letting part, including any repairs or issues. Your daughter won’t have the time or perhaps knowledge, as a young and busy student. It will also help from a personal dynamics front, where your daughter and her friends are convened. Eg. Agent charging the tenant and arranging a plumber, via you.

3. if you’re mortgage free, I wouldn’t be worried about having the mortgage in your name, as long as the flat is in an area where rent is guaranteed. Another reason to get an agent.

4. 500k in london is not a massive mortgage, in my opinion. If you look at what your daughter will likely get out of it, in the future.

5. you can take on the mortgage for your daughter, but can you also take one on for your son, when he’s 18?

6. if your son doesn’t want to live in london or go to uni in london, then the same amount of £500k could probably buy a flat outright in another part of the the country. May not have an issue.

There are so many factors here.
#500k is alot of money. If the plan is to gift your granddaughter them I think it might be best to buy a house with the money outright (obviously not in London). You can then rent it out, and the money generated monthly used by your daughter to pay for her accomodation in London.

In future, she can decide to sell the house and use the money to buy someplace she'd prefer to live. Or buy multiple houses with the money as deposits.

How would she get a mortgage as a student? Seems like a mad idea. Much better to rent as a student then give her the £500k to buy a decent house when she graduates! Won’t bet much in London but you would get a great house most other places.

Student mortgages are available.

Medical students have 5/6 years at University. After that junior doctors are expected to be highly mobile for much of the next decade. F1/F2 is about to become even more of a lottery, so you go where you get offered. It does not get any easier after that. There is an acute shortage of training positions, so if you get a place you take it, even if it is hundreds of miles from family or friends.

Getting your feet on the property market at an early stage is financially a good idea. Though obviously there are considerations which are not financial.

Who's name is the mortgage in? A student won't get a 500k loan.

Having a £500k mortgage at 18 is not a good idea. I’d 100% prefer to have the £500k and buy a 2 bed maisonette. Otherwise she’ll be stressed with trying to get the rental income in and having to deal with unreliable tenants.

Sounds great. Instead of losing money to landlord, her own flat will gain in value.

she can always sell it when she is finished if she doesn’t like London and pocket the increase of value.

if the grandparents are buying it your daughter may still get her first time buyer discount should she sell and buy somewhere else.

it is a win all around I would say. How fortunate for her and you as you aren’t having to fork out for rent

Personally they'd be better off buying her a 1 bed apartment (using her inheritance)
The mortgage isn't fair to pass to you to sort, nor is it viable for them to maintain the property due to their age & location.

Why couldn't they just gift her a home for herself?

Exactly this. Do they need to buy a 4 bedder? Why not just focus on getting your DD her own place a 1-2 bed. That will then take the whole hassle out of being landlords, charging friends, contracts etc this can all be very stressful. And this would cost them less.

Lots of people I went to Uni with parents did this. Most private landlords were horrid so I’d much rather have rented off someone like this, presuming your parents will look after property, not be cretinous landlords. I think it’s important that they’re the landlords, or even getting a third party involved so it’s not your DD being landlord. My partners family older siblings got bought houses but by time he was in Uni house prices had risen he got a sum of money towards a deposit when he graduated. He doesn’t feel hard done by. Some parity for brother would be good, but presumably if he went somewhere cheaper they could probably buy a property outright.

Of course it's a good idea. Most parents would if they could. Rent in London is difficult. Med degree very long hours so that security will be well needed and appreciated. Your parents can always get an agency to deal with the landlord side anyway.

I guess the main things to consider are capital gains tax and the ownership of the property. Perhaps investigate putting it in a trust if you haven't already or think about how your parents gift it/tax implications - if they gift it now and live 7 years there wouldn't be any inheritance tax.

Problem with flats in London are issues with freeholds & maintenance charges so make sure you get clarification on that!

So many negative comments.

another viewpoint - they don’t do it. The money sits there nothing added to it.
your daughter struggles to make ends meet, living in a high cost of living in a very expensive area. 5/6 years later she’s wasted thousands on thousands on renting a mouldy flat with flatmates she’s hates and your parents still sit on £500k

buy the flat. She pays rent or she gets her friends to. Advertise the flat for rent. Rental market in London is Crazy right now. London house prices will never fall, the money could triple by the time she moves out. Keep it in your parents name, and treat it as an actual rental with an agency. Everyone is protected. 6 years time she keeps it and the grandparents sell it to her at a near nothing price - no inheritance tax. Or they sell it, made a profit and help with the next funding.

renting is a hole. Once your in it, it’s hard to get our. Landlords can be sleezy.

If its a gift your parents need to survive 7 years, for your daughter to avoid inheritance tax. If they pass before the 7 years anything over 350k( I think that's the current figure) she will pay 40% tax

Surely it will be the grandparents estate that pays any inheritance tax due on any gifts given?

If you sell at a non market price inheritance tax is payable on the market price. The grandparents estate doesnt pay the IHT unless it is specified that they do so.

To quote the IHT manual "A specific gift bears its own tax if the tax on it comes out of the property given - so the beneficiary gets the gift less the tax due on it."