Buying flat for student DS

[Kr1s]

I have inherited some money and wish to use it to buy a flat for student DS to live in while he's at university.

He's studying in an inexpensive city where I can buy a 3 bedroom flat for approx £150k, he can live in it with two friends and we would get a total rental income from them of about £8k pa ( we would charge them slightly below the market rent ). At the moment we are paying £5k pa rent for him.

I'm not sure of the best way to do this, in terms of legal and tax issues.

1. Do I buy it in my name alone, his name or jointly? I'm not sure how this affects capital gains and income tax.

The reason for considering joint ownership is because I want to still have some control over this money - the plan is to sell up/ remortgage when he finishes his course in four years and use some of the capital to help DS1 buy his own place and the rest to do the same for DS2 when /if he goes to university .

1. In terms of income tax, I assume he pays none on any rental income in his name as he has no other income ( apart from casual holiday work, which wouldn't take him up to the personal allowance). I'm a basic rate tax payer and any income in my name wouldn't put me up a band.

1. I assume we should buy the property outright and not with a mortgage as we can't off set this cost against rental income - is that correct ? Of course there will be other costs such as insurance and service charges.

1. If I'm the landlord, do I have a joint or individual tenancy agreement with his flat mates ? Or if he's a joint or sole owner, does he use the rent a room scheme and have an agreement between him and his lodgers?

It's not a major hassle for him to fill in a self assessment tax form, I'm more concerned that he's able to get rid of the flatmates in the unlikely event that one of them turns out to be a total nightmare.

As you can probably tell this is unknown territory for me. I know that we are very fortunate to have this lump sum and I want to make good use of it for both my children.

South London - thank you very much for all your useful points.

We are not expecting to " make a killing " . The housing market in this area is very stable , with no big increases therefore no price falls so far. If it was all about investment, then I guess we could perhaps get 6% elsewhere. But then DS has all the hassle of finding somewhere decent to live every year for the next 4 years .

BTW the £150k purchase costs is very generous , there are decent places for £120-130. I agree your set up costs and expenses are realistic - there's no ground rent but there are service charge, minor repairs etc . So more like £150k including all transaction costs and initial costs ( decoration , furniture, appliances ) .

Rent is very high compared to purchase costs because there are so many students in a small geographical area wanting to rent .

Hence the huge rent his friend pays to live in a slum. Landlord of property bought it for £200 k a few years ago and has turned it into 3 Flats. We reckon he's bringing in 10k a month. Mates room didn't even have furniture when he moved in, he was in a sleeping bag on the floor.

It's shocking. We don't want our son to end up at the mercy of people like that.

But you're right, it's not money for nothing.