Helping your child on to the property ladder

[completeminimis]

Has anyone used the Barclays Springboard family mortgage? We are thinking of doing it with dd. Dh and I are both retired and fortunately very comfortable due to an inheritance.

Dd lives in London and pays an eyewatering sum for a room in a shared flat. She's keen to get her own place but you won't get much for your money in London. (she has to be there for work). So we are thinking of ways to enable her to get on to the property ladder sooner rather than later.

We looked into it, but it wasn’t the deposit that was the issue for DD, more she couldn’t borrow enough to get a house in a decent area.

so we “gifted” her a third of the cost of the property and she saved up around a 14% deposit herself. On paper we gave her the money, in reality the private arrangement we have between us is that it’s an interest free loan which she can repay in ten years, by which time she should have advanced professionally and been able to raise more money, OR! She’s in a relationship and sells and they buy together.

of course, she could do a runner with our money, but she’s our daughter and that won’t happen for lots of reasons.

as it happens, she is in a long term relationship now, her partner has his own flat, so in a few years they will likely sell both and move to a joint house in which case we will get back a third of the property at its value at the time. As per our agreement.

If you can afford it ‘gifting’ is the simplest way. We did it for our DCs and as long as you live for 7 years it does not attract inheritance tax. Over that time the tax on it diminishes.

So that means we could gift '500k' now and it won't be taxed?

@completeminimis if you live for 7 years after the gift

We gifted a substantial sum to our daughter and son-in-law as a deposit for their house. Best use of savings ever, and my seven years will soon be up! It was a very straightforward process - you have to show proof of where your funds have come from and also sign a letter confirming that it is a gift not a loan.

I wonder if they check the 7 years thing after someone does. Does anyone have any experience?

*dies

Do we both have to survive for the seven years?

I guess I've been looking for a reason to downsize too!

She could rent a room out to help with the mortgage. No tax to pay on rent received up to £7500 (?) per year. It could just be for a year or two. See Government's Rent A Room scheme for stake

You need to get legal advice to ring fence any gifts. My daughter is dating a loser, the only way I'll be helping financially is if he signs away all rights.

I’m not a legal expert, but one couple we know has done this:

There is a way, both parties on the mortgage can get a legal contract drawn up to protect money they’ve put into the sale and how the profit will be divided if the property is sold. It also can contain clauses that avoid one owner blocking a sale.
However, if the couple get married any previous contracts are revoked and the normal married property ownership come into play.

Not necessarily - often you would both need to die within 7 years for inheritance tax to become due. Basically gifting wouldn’t result in more tax being payable it would only reduce inheritance tax liability (in many cases).

I think if you as a couple gift £500k, it could be thought of as each of you gifting £250k.

My understanding:
Let’s say a couple jointly own a home worth £800k and have £700k in cash in a joint account and own nothing else - so £750k “each”. They jointly gift £600k to a child. After 4 years 1 parent dies.

The deceased passes their share of the home to their spouse without inheritance tax liability. The £50k share of the remaining £100k in cash, that too is left to the spouse so no inheritance tax due. The £300k they gifted is less than £325k so no Taper Relief but is less than their Nil Rate Band anyway so no inheritance tax due on it. However, it does use up £300k of their £325k allowance.

In effect they pass their unused allowances of £25k NRB+ £175k RNRB to their spouse (£200k).

After 2 further years parent 2 dies. Parent 2 had “inherited” £200k of allowance and have £500k of their own allowances to use if they leave their property to their child. The £300k they gifted is also below £325k so again no Taper Relief.

Their estate is valued at £800k home + £100k cash + £300k which as gifted = £1.2million, they have £700k of allowances to use leaving £500k on which inheritance tax is due (£150k) just as if the gift had never been made.

If parent 2 died 8 years after the gift then there would be no inheritance tax due.

https://www.gov.uk/inheritance-tax/gifts

Meant to say IHT due is £200k as 40% of £500k