Many parents want to know the best way to buy a property for their children, for example while they are at university. The options have to be carefully considered, bearing in mind asset protection and the interaction of various taxes. This is a difficult area on which specialist advice is required. It will be important to ascertain what the priorities are. Is the intention, for example, to remove value from an estate for inheritance tax purposes? Is the aim asset protection? Or is the intention eventually to sell the property free of capital gains tax?

Asset protection

Asset protection is important because 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, tax considerations come into play.

Loan arrangements

It may be that a loan is required to buy part or the whole of the property. The options there would involve the imposition of a lending arrangement, whether through a commercial lender or 'the bank of mum and dad'. This will also impact upon the tax and asset protection angles. We can provide further information on these options if required.


The following taxes need to be considered.

Inheritance tax (IHT) is payable at 40% of the value of a person's estate on death. The estate charged to IHT includes the value of any gifts made within seven years before death. Gifts to certain types of trust can trigger an IHT charge of 20%, which is payable immediately, if the gift (together with any other gifts made in the preceding seven years) exceed the nil rate band, currently £325,000 (doubled up to £650,000 in the case of spouses). Purchasing a property for a child, or otherwise making available the funds to allow them to do so, is a gift.

Capital gains tax (CGT) would be payable on a later sale of the property on the difference between the purchase price and the sale price, subject to some limited deductions and the annual exemption (currently £11,100, although it is half of that if a trust owns the property). CGT is charged at the top rates of 18% or 28% on residential property (which of the rates applies depends upon your other income and gains). If the property is the principal private residence of the seller, or of the occupant under certain trust arrangements, then an exemption from CGT applies.

If the property is let out, perhaps where a second room is let to the child's friend, the rental is income for the purposes of income tax (IT). Rent-a-room relief from IT may be available.

There will be land and buildings transaction tax (LBTT) payable on the purchase price of the property, starting at 2% on the portion above £145,000 and rising in stages to 12%. There is also the additional dwelling supplement (ADS) at a flat rate of 3% on the whole price where that is over £40,000 and where the property purchased will be the owner's second residential home. For example, a house bought for £280,000 is charged to LBTT at £3,600. If ADS applies then another £8,400 would be due.

Some options

There are various options available to you, although much will depend upon the circumstances and it will be essential to obtain more detailed advice:

1. Take title to the property in the name of the parents

This retains control for the parents as the property is in their name. However, ADS will apply on top of LBTT assuming the parent (or their spouse/cohabitant/dependent children) owns a property themselves. This option does nothing for the parents' IHT position as the value of the property would form part of their estate for IHT. There would be no principal private residence relief (PPRR) for CGT on a later sale. Rental income would be taxed on the parent.

2. Take title to the property in the name of the trustees of a bare trust

A bare trust is a very simple trust that gives parents more control. ADS is avoided. It is good IHT planning for the parent because if the parent survives for seven years then the value of the gift is removed from their estate for IHT purposes. The PPRR should apply on sale. Rental income will be taxed on the child. However, the child would have the right to demand the property at any time so the property would have little protection from claims. The parent cannot demand the property back.

3. Take title to the property in the name of the trustees of a substantive trust

A substantive trust would provide the most control and asset protection. Trusts can be flexible where the parents want to sell the property after their child has left university and have the sale proceeds in their hands, treating the property as a short-term investment. Where there is more than one child in the family, and it may be the intention that they all attend the same university city and live in the same property, trusts can allow flexibility. Trusts are good IHT planning for the parents so long as they are not a beneficiary of the trust. PPRR for CGT can be secured. The IT position can be managed by giving the child the right to the rental income. ADS would not apply unless the trust is a discretionary trust. However, a gift to a trust exceeding the available nil rate band(s) would trigger an immediately payable 20% charge to IHT, with another 20% to be collected if the parent dies within seven years. For smaller gifts there would be a charge to 40% if the parent dies within seven years. Depending upon values, the trust could also be subjected to an IHT charge of up to 6% every ten years; and to a proportionate charge to IHT on an exit of assets out of the trust between ten year anniversaries.

4. Take title to the property in the child's name

This avoids ADS. It is good IHT planning for the parent. The PPRR for CGT should apply. Rental income will be taxed on the child. However, this option 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 with any of the contacts below.


Mark Stewart

Head of Personal & Family and Partner

Alan Barr


Leigh Gould