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.

By the time anyone buys a property it will be the next tax year, if not the next academic year. Your parents should, to reduce inheritance tax liability, gift the money to your daughter in this tax year. A property in your daughter's name or with someone who doesnt yet have a property attracts lower Stamp Duty Tax if less than £500,000 but she may not find much for that price. They should also gift the money they want to give to your son. They need to be aware of the risks that inheritance tax may become payable if either of them dies and each should gift half the amount to each child. Ideally their wills specify that any tax that become due is paid from their estate on death.

Buying a property that she can live in for 5 years and rent out would be a good use of the money. Rental properties for students in London are often miserable places or they cost more than £1300 a month. She will have no problem finding others who want to live there but needs to make sure they are properly screened with parent guarantors.

She needs to consider location not just now but where she may have to travel to placements. I've known of UCL med students live outside London in their later years.

Alternatively your parents could consider paying her student fees and living expenses. I believe this is still exempt from Capital Gains Tax While it's not generally a great idea most doctors will never pay off their student loans and will be paying 9% of salary for 40 years.

One of my daughters got 5 medical school offers. Within a term she decided it wasn't for her and switched to chemistry at the other end of the country.

All very well for your DD, OP, but she will at the least be subject to some jealousy from peers. She's only 18! I'm sure the offer is well meant but how about a trust fund instead. I'm trying not to point out the growing inequality in the UK because some people have got lucky in the the property market.....

Also OP a flat in your daughter's name would cause her to lose FTB status!

I think giving anyone an advance on their 'inheritance' is a terrible idea. Especially when there is a sibling who, presumably, will not receive anything until the GPs actually die.

Then there is the matter of how much has been spent in the meantime and how much is actually left to beneficiaries after IHT etc.

Your DD is essentially getting a massive advantage over her brother in that she has the capital benefit of half a million for many years. Unless they are also investing the same for him and making sure that he also has capital growth, then it's unfair.

So much of this is extremely risky and foolish.

If heaven forbid something happened to your parents over the next few years there may well be inheritance tax to pay on the gift given the size of the estate. Where will that come from? Will there be enough left over to pay any tax.

You and your DH can't get a mortgage on a property in someone else's name and your DD won't get a £500k mortgage (or in fact probably any mortgage at the moment).

Buying with a friend is insane. Where on earth does your DD think she'd get the money from to buy out the friend if they fall out or the friend or your DD want to buy with partners in a few years' time.

The only sensible option is for your parents to buy a property they can actually afford and allow DD to live there and then she and DS inherit an equal split of their estate when they pass (if there is money in the estate at that time and assuming you're not also a beneficiary).

THIS!!

As other poster said she might have to go and live in a different city to do a specialisation at a different hospital.

Of course DD is jumping at the chance, because like every 18 year old student in First Year, they are worrying about where they will live next September.

So she'll agree to anything that seems very handy. And of course she'll run off and ask Maisie to ask her Dad can they buy a fab pad in London for themselves.

My friend's DD had a very similar scenario although in her case the DD had an inheritance. DD med student in London. They used it to buy a flat in London - was a 2 up 2 down. The kitchen was large enough for a small table to at various points she had 1 or 2 flatmates and they used the living room as a bedroom. It wasn't the most plush flat (1960s ugly block) but it was good location for uni. She loved there all through uni and then a few years after. She's moved out of London now but has kept it on and rented it out. It has worked out brilliantly for her. I'm sure there were some boggles with flatmates sometimes and maintenance but surely better than renting and moving etc

I think it's important that the siblings understand this is their inheritance. Does DS get his now? If not do they ring fence somehow? Even things like her £500k could be worth £600k by time your DS gets his share. What if his is still only £500? Is that ok? Or should they both get now?

@ctownsie Is your daughter assertive and thick skinned? Mature enough to understand the level of responsibility?

It would be a great oppourtunity for her to have stability and not waste loads of money of london rent, but it's likely to land her in awkward situations with her friends (e.g., them not having as much respect for the property, annoyances about paying her money, squabbles over fairness). I just think of in general what student houses are like, and how students tend to treat them, and would have hated to have been in the position of live in landlord with my friends!

I wouldn't have been able to deal with that well when I was 19, but it completely depends on personality.

I think it would be far less stress for her to have a 1 or 2 bed bought for her, however it depends on whether that might be isolating, as part of the university experience is living with friends.

No way would I be taking out that kind of mortgage- seems like a massive route to disaster/ stress. What if DD wants to move, or can’t get house sharers? What if house prices tank? You will be on the hook for that amount regardless. This seems like a really unnecessary risk, and might lead you all to becoming professional landlords. Have they also considered that the rental income will be taxed in the hands of whoever is due to receive it.

I agree much better to buy a more modest place outright.

No

It was a lovely idea until I read the word mortgage ! then I read that the mortgage may be in your name !!!

NO

If they wish to buy their grand daughter / your daughter a property outright for £500,00 and it is solely in her name then fine. She can then have a lodger rather than a tenant to help her cover her costs of living there.

She ought to have a large say in what property it is as she will be the one living there.

I agree with this. Too many things to go wrong and just too complicated.

Can the flat be bought in trust for BOTH grandchildren?

Whatever you decide, make sure to get some legal advice - you need to appreciate the inheritance tax implications in particular.

But really, I can only see upsides to such an amazing gift ❤️

A two bed means that she can potentially stay in it right through training and the early years, through meeting someone, until she’s married with babies - for someone working as hard as medics do and for such proportionally crap pay for what they do, that will be life changing a decade down the track. A four bed or buying with friends will be a potential millstone.

Honestly some people clearly have no idea what to do with money. The daughter would get some sort of buy to let mortgage based on likely rental income. The lender would have a 50% deposit, they arent going to be worried about getting their money back, they can always repossess. I wouldnt suggest a £1 million property, though and if they could keep under £500,000 the lower Stamp duty for FTBs is a nice bonus. Parents can be guarantors for a mortgage instead of the student rent - it's less of a risk than the perils of guaranteeing rent!

The grandparents need to consider if they have enough for care home fees if needed. For that reason investing the money and gifting your children the income would be one one of handling it. You can gift any amount of money free from CGT if it's out of income.

But this does mean wasting a fortune on London rents and all the hassle that comes with it,

The very WORST thing the grandparents can do is sit on all the money until they die.

I've not RTFT but my thoughts would be:

Inheritance tax if something happens to your parents in the next 7 years - could be £200k you'd have to find to cover the tax on a £500k gift. Way more expensive than rent even in London. And what if your parents suddenly need care and it looks like you've hidden their assets?

Buying together - what if friend decides she wants expensive flooring/remodelling etc? Or daughter wants to get the boiler serviced and friend doesn't want to pay? Or when one wants to sell but the other doesn't? So many scenarios that say disaster.

I'd be amazed in this situation if is getting a £500k mortgage as a student or in their 70s. Would your daughter evict a friend for non payment of rent? I lived with a friend at uni who was bought a flat by her parents, it caused a resentment that she was rent free, getting money from me, and her own job, and complaining about being broke to me when she was measurably better off each month. It doesn't always work with the imbalance.

Fairness for your son has been mentioned too.

Lots of good points here but deprivation of assets should also be considered. Any capital, assets or property which they divest or own can be taken into account if they require care in the future

Deprivation of Assets | Age UK

This is crazy. She's in first year, so we're talking about her buying a property - probably a half million pound plus investment - with someone she's known six months.

If she suggested this with a boyfriend you'd tell her it was a dreadful idea, so why is it all sunshine and roses because there's no romance involved and the relationship is strictly platonic? If things go south your DD could have a nightmare on her hands legally and end up isolated from her friendship group.

Also PP made a good point about her potentially marrying an unsuitable boyfriend who stays long enough to get his share!
Even if that's 10 years.. 22 - 32.
Not sure to what extent a property can be ringfenced in such a long marriage.

If I was your son I’d feel really upset by this. Fairness is terms of finances needs to be equal between them and it doesn’t sound like there’s a plan in place for DS.

I mean such scenarios are not unheard of.

With that said i think it's ridiculous to go looking for a one million pound flat with a deposit put down for half of it and you expected to be on the mortgage for the rest.

I also think its ridiculous to buy with a friend potentially only known for 5 months.

Just buy outright.
The flat doesn't need to be in zone one either. Commuting won't hurt.

Do students in London pay £1250-£1350 per month!
Wow!

I thought Edinburgh was expensive and a struggle at £800, even with a part time job.

This is going to end in tears. They wouldn’t be gifting your DD a house they would (as the people named on the mortgage) making you financially responsible for your DD’s accommodation.

If they really want to do this, I’d be more inclined to suggest they buy her a small flat or bedsit outright. Then they should also save/invest etc the same amount for your son. I’d absolutely refuse to take a mortgage out for half a million - that’s madness. A simpler and more common method of support would be for them to pay or contribute towards her rent. Renting to friends is asking for trouble.