Helping Children onto the Property Ladder

Property ladder

 According to a recent survey, parents are increasingly helping their children take their first steps onto the property ladder with the average parental contribution in 2019 being £24,100.

 

Most parents give their children a contribution towards a deposit. The majority of mortgage lenders will accept a deposit that has been gifted (or partly gifted).  Some lenders may ask for confirmation from parents that the money is a true gift and not a loan that requires repayment and also that they do not retain an interest in the property.  

 

However, if the parent gifting the money was to die within seven years, it would be classed as part of their estate for Inheritance Tax (IHT) purposes. This means that if the value of the whole estate including the gift (but after any residence nil-rate band), is worth more than £325,000, tax may be due on the excess. The rate of tax due is calculated on a sliding scale depending on the years between the gift being made and death, ranging from 40% to 8%.

 

Whilst making a one off financial gift is the most popular choice for helping children to get on the housing ladder, there are other options, including a loan or a joint mortgage and offering equity as security.

 

It is wise for any loan to be accompanied by a formal loan agreement. This should also be declared to the mortgage lender.

 

If you are considering taking out a joint mortgage it is important to be aware that this may count as a second home, in which case you would be liable for an additional 3% stamp duty. There may also be capital gains liabilties when the property comes to be sold. 

 

Lentells are able to advise on estate planning, including the impact of gifts to children. For more information, please contact your local Lentells office;

Chard – 01460 64441, chard@lentells.co.uk

Seaton – 01297 20584, seaton@lentells.co.uk

Taunton – 01823 286274, taunton@lentells.co.uk