Many parents want to know the best way in which to buy a property for their child. The best option may be the one which meets your own financial objectives and protects family wealth. There are also four taxes to consider - inheritance tax (IHT), capital gains tax (CGT), income tax if a room is let out, land and buildings transaction tax and the additional dwelling supplement.
While the simple option may be to buy the property in the child’s name, that leaves the property open to various risks. These could include claims by the child’s (future) spouse or cohabitant, or to creditors if your child takes on debt. It may be wise to shelter the property from such claims, and in deciding how best to do this, four tax considerations then come into play.
Some options are to:-
- Take title to the property in the name of the parents. This option retains control for the parents as the property is in their name, but it has tax downsides.
- Take title to the property in the name of the trustees of a bare trust. This gives parents more control, and it can save on all four taxes. However, the child would have the right to demand the property at any time so the property would have little protection from claims.
- Take title to the property in the name of the trustees of a substantive trust. A substantive trust would provide control and asset protection. Trusts can be good IHT planning for the parents, CGT relief can be secured, and income tax can be managed.
- Take title to the property in the child’s name. This is tax friendly but it gives the parent no control over the property as it belongs to the child.
This is a complex area and it is therefore important to obtain specialist advice to best protect family assets, avoid tax traps and ultimately support a family member on the property ladder. We can help families achieve these objectives and please do get in touch.