The Bank of Mum & Dad: Helping your child buy a home

Saving for a house deposit has never been harder. Young, first-time homebuyers may find themselves overcome by student debt, rising house prices and stringent mortgage requirements. As a result, family wealth is increasingly being used to help young people on the property ladder. 

A recent survey by property website, Zoopla, revealed that two thirds of parents say they have helped their child to buy a home by contributing towards the deposit, with the average contribution amounting to £32,440. 

“As housing and living costs increase, it’s unsurprising to see children turning to their parents to support them with their finances. Many parents view this financial support as their child’s inheritance being handed down early, but few consider that emotions can run high if the money is later disputed,” says Granville Turner, Director at Company Formation Specialists, Turner Little. 

“There are many ways to help your child buy their first home, from being a co-owner or providing the mortgage to gifting or loaning the cash for the deposit. But it’s important when deciding to give or lend money, to set out expectations that can help protect family wealth and take into consideration the tax implications of doing so,” he adds. 

Inheritance Tax

Helping your child with a gift of cash, then inheritance tax (IHT) could be charged if the giver dies within seven years of giving the gift, and their estate is worth more than the current £325,000 limit. 

Stamp Duty

If you are named on the deeds of your child’s house, whilst already owning a different property, you may find that they’re charged the higher rate of stamp duty that applies to second homes. 

Capital Gains Tax

If you help your child buy a house, and have a share in their property, you may have to pay capital gains tax if the home is sold at a profit later on. 

“Making the decision to part with a large sum of family wealth, whether as a loan or as a gift, is a major financial commitment. Making sure you’re well aware of any issues will ensure you can help your child, whilst protecting your own wealth. Always make sure you seek professional financial advice, before making any decisions,” says Granville. 

When it comes to wealth management and safeguarding your assets, Turner Little’s highly experienced wealth advisor will take the time to get to know and understand your financial needs, and those of your family, now and in the future.  Get in touch with the team today to ensure your financial wealth and assets are protected.