We want to help our son & his wife buy a home. What's the best way to do this?
Posted on 6 December 2013 by Andrew
We are a married couple in our late 50's happy to assist our son and his new wife, both aged 30, buy their first property. Our son is the only household earner with an income of around £41,000 pa. They have modest savings. He has a mortgage offer in principal up to £205,000 but, given that part of his income is commission based, they prefer to borrow no more than £140,000. The bank of mum & dad are happy to assist with the deposit up to £50,000, £30,000 of which would be a gift with the remaining £20,000 considered investment to be repaid to us at a later date. We would consider buying a property ourselves and renting it to them 'at cost' if this was feasible but we would need a mortgage on it and are unsure whether we would be able to secure one at our age.
Our questions are; (1) Would we be able to get a mortgage at our time of life on a second property and if so would this be personal or as a buy to let? If yes to either, we could provide a deposit of up to £80,000. Or, (2) would we be best giving them the £50,000 deposit and letting them get on with it themselves? Yours sincerely, Andrew.
The answer to your first question is that where you are buying the property for your son and his wife to live in, then it will be bought either as a regulated buy to let where you will have to disclose to the lender that it will be let to a relative or as a property for a dependent. In the latter case, this property is not classed as a second home for mortgage purposes as you do not have the intention of living there.
The answers to both questions also touches on tax: income, capital gains, and inheritance tax planning, over the question of keeping or relinquishing part of your estate etc.
From a financial point of view, in the first case the liability will be yours, you have to declare the income for tax purposes and when you sell the property, there will be potential Capital Gains Tax liability on the gains. In the second case your son will be liable for the mortgage, the money you will gift will be non refundable, I.e you will not have further access to them. The gift may also affect the inheritance tax liability if it exceeds £325,000 including other gifts made in the last seven years.
I would strongly recommend to speak to your accountant and tax adviser regarding the full aspects of any of these taxes.
Once you've done so it would be worth speaking to one of our consultants to look at the different mortgage options. Please let me know when you're ready to do so, and I'll arrange for one of them to contact you.
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