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.

Totally agree

Sounds like a potential night. I wouldn't want that mortgage and I have an OK job.

That’s what I thought

Surely she’d be better off in halls for the first year then? That’s where everyone else will be.

@Miyagi99 - dd is in her first year now.

What happens if one or both grandparents need to go into a care home?

In her clinical years she will be outside of London as the London deaneries are vast.

She needs to go into halls for first year to make friends. It is a tough course and friendship groups are very important for study and relaxation.

Why not get 2 one bedroom flats next door in the same block to each other?

DD buys one and her friend buys the other 🙂🙂🙂🙂

That way they are not reliant on each other for selling or buying or living away BUT they are sort of living together and can be in each others spaces as much or as little as they like

🙂🙂🙂🙂🙂🙂🙂🙂

Then if the friend turns round and says they are going to live abroad for a year and meets a partner and decides to stay there then no problem for your DD

ALSO, don't forget about inheritance tax if your parents die within 7 years of the gift to your DS

So I think he gets his £500,000 now and gets it invested

Otherwise his money goes into IHT fines

Perhaps buy a house elsewhere and use for RENTAL or Airbnb and/or holiday home for everyone including your parents?

My partner and his DD have just gone through something similar with a few big differences. Her mum passed away when she was younger and this money had been held separately for her and no mortgage involved.
She got a lovely 2 bed in a nice area, need some updating.
They spent the summer renovating then had one of her acquaintances rather than friend move in as a lodger. As she is mortgage free she doesn’t charge full market rate but it is enough that it covers all the bills and gives her some profit which she uses in addition to her wage from working to live on/save.
She still has money from the inheritance left (her dad and mum owned a big house in London, when her mum passed her dad moved to somewhere much cheaper, bought a house for less than half of what the other house had sold for (life insurance had paid off the mortgage), a good chunk of the remainder was her inheritance and that’s accumulated interest over 8/9 years. So she can use that for travel and wedding etc. She’s also well aware she needs to be on guard for any predatory relationships and not rush into marriage.
So far there hasn’t been any issues but she has a list of emergency plumbers etc. And is a sensible girl.

She is a first year medical student. That means she is pretty intelligent and on the whole they tend to be more mature than the average 18 year old, perhaps because they mostly have volunteering or work experience or both. I doubt she will be rushing into marriage with a predator.

My parents' neighbour bought a house for his student son. The son then changed university and the neighbour has had problems with all subsequent student tenants!

Sounds like a well meaning disaster waiting to happen. I wouldn't be taking out another mortgage if I was you.
Buy her a smaller flat or gift her the money, but this comes with to many potential complications

Personally I think this all sounds very generous but completely insane. You are all behaving as if the GPs are talking about popping off to a car dealership and buying your DD a second hand VW Polo, not a million (or even half a million) pound property.

I'd strongly recommend seeking professional financial advice.

Agree with all the pps who say don't encourage them to buy together. It's a terrible idea. Things change so much at that age.

When I was at uni, one of my friend’s parents bought a three bed in Hammersmith for him, and two other friends moved in and paid rent for a few years. All went fine and he and his family still live in the property 20 years later! It would be a very bad idea to co-own with a mate though. But the principle of buying a student a house / flat and then renting out the rooms is sound.

NO again, no joint purchase with a friend

They will squabble about who has the biggest bedroom ! etc.

and friends fall out / want to move elsewhere at some point / have partners / want partner to move in etc. etc. etc.

One property / One owner and a lodger.

They say they will deal with everything?
How experienced are they in renting
What happens if the friends don't pay the rent?

500k is a huge mortgage to take on as a student and first time property owner. Even if the mortgage isn't in her name, she bears the responsibility to keep tenants contributing financially and share houses don't always work out well. There are also the ongoing costs of maintaining a home. I'd be opting for a cheaper property that's more affordable and comes with less debt - preferably no debt at all.

Someone upthread made a very sensible suggestion of investing the 500k and using the monthly interest to pay for the accomodation.

Sounds like a low risk idea to me. You'd be clearing 1.5k after tax at the current rates and have 500k to buy a property after graduation without the hassle of selling etc.

Caveat: no idea if you can gift 500k. And who knows what's happening to the interest rate.

At 74 and 75 the first question is whether they will have enough assets left after this to pay for a care home for one or both. They have decent pensions, apparently, but decent to live on does not mean decent care homes. They need to secure this first.

Then they can think about sensible inheritance tax planning and that means giving money away as soon as possible as the rates payable dont decline much for the first 3 years. They may want to take specialist legal advice, here is somewhere you can find a person https://advisingfamilies.org/uk/find-a-tep/

This firm also offers good advice, seems like paying uni fees and living expenses may only be free of inheritance tax when it's the parents who do so. https://www.wake-smith.co.uk/advice-centre/estate-planning/probate-estate-planning/How-to-help-financially-support-children-and-grandchildren-through-university#:~:text=You%20can%20help%20your%20child,expenses%20on%20a%20regular%20basis.

"This firm also offers good advice, seems like paying uni fees and living expenses may only be free of inheritance tax when it's the parents who do so."

or is out of a grandparent's surplus income. The link suggests it is not a good idea to allow capital to build up if it will be subject to future IHT. Regular payments to cover a grandchild's education is one way of doing this.

@Needmoresleep If they have more than enough for potential care home fees they need to get started on giving it away or lose 40% to the tax man. Regular payments out of income are fine for stopping capital building up but their relatives will still lose 40% of the capital. The £6000 they can give away each year between them really doesnt touch that.

"The average weekly cost of a residential care home in the UK is £760, while average fees at a nursing home cost £960 per week. The monthly average cost of residential care is £3,290, equating to £39,520 a year and nursing care in a care home costs on average £4,160 a month, equating to £49,920 a year. "

I think average stay is under 3 years so I'd suggest they need to budget for at least £300k each, although the second £300k could come from their current home. I would include the current pension in the calculation, so if the pension is 20k a year after tax budget for 120k less. They should be looking to give away, preferably in this tax year, anything much more than that. Possibly these savings set aside for a care home when needed could be used as an offset for granddaughters mortgage.

As for the mortgage - these companies would be suitable places to look https://www.onlinemortgageadvisor.co.uk/blog/buy-for-uni-mortgages-graduate-with-more-than-just-a-degree/ or https://doctorsmortgagesonline.co.uk/new-medical-students/#:~:text=Doctors%20Mortgages%20Online%20is%20a,your%20journey%20to%20homeownership%20today!

Are you a lawyer. If not please double check.

The rules allow for regular gifts out of surplus income. I have no idea where your £6000 comes from.

My mother, who lived with Alzheimers for a decade, did just this. She had surplus in ome because she did not go into a care home. Even if she had the money would have come fro.the sale of her property.

All win. She self financed so was not reliant on the state, DD left University without student loans, and my mother received care in her own, albeit sheltered, housing.

I'm not a specialist in capital gains tax but I do know that £3k is the maximum capital you can give away in one year. Yes you can make gifts out of surplus income but that does not dent the capital.

There are two elderly people to consider here. While the care of the second can possibly be financed by selling the house (which I mentioned) the care of the first needs to be covered before they give away their capital.

If you dont understand the difference between capital and income anyone inheriting from you could pay a lot of inheritance tax.