With the Bank of Mum and Dad regularly helping to finance property transactions for their offspring, it’s important for parents to be aware of the tax consequences of doing so.
INHERITANCE TAX (IHT)
Although it’s tempting to give children large amounts of cash for a home, this requires careful thought and planning. IHT is a tax payable on money, savings or any other assets you pass on when you die, and potentially on some gifts you make during your lifetime.
Giving away more than your annual IHT exemption of £3,000 (that’s in total, not per person) means that if you die within seven years of making the gift, your estate could be liable for inheritance tax if its value exceeds the individual threshold of £325,000. If the estate is liable for IHT, it is payable at 40% on the excess. However, the year your child gets married you can give them an extra £5,000.
In certain circumstances, you can make gifts out of your regular income, but you’d need to show that making these gifts doesn’t affect your normal standard of living, so taking professional advice is essential.
If you lend your children the money, then if they pay you interest, this is taxable.
CAPITAL GAINS TAX (CGT)
Parents buy a house with their child, and don’t live with them, and then when the property is sold, they could be liable for CGT. The property will not count as the parents’ main residence for tax purposes, and so CGT is payable on their part of the proceeds on sale.
ADDITIONAL STAMP DUTY
Helping out with the deposit for a child’s property may not pose a problem, but part-owning can mean additional stamp duty is payable. If parents buy a property for their child and are named on the deeds and already own a home, this purchase counts as a second home and may be liable to stamp duty at the higher rate.
The Financial Conduct Authority does not regulate some forms of Taxation advice.