Iona Bain
Parents are handing over thousands of pounds to help their offspring fly the family nest – a process that is neither easy nor cheap in an era of university tuition fees, post-Brexit inflation and the high cost of housing.
According to research conducted for The Mail on Sunday by Nationwide Building Society, 85 per cent of parents have stumped up cash for everything from broadband to bookshelves, with more than half of the money coming from their savings.
Getting youngsters started at university is usually the biggest outlay. But Mum and Dad are also subsidising mobile phones, clothes, books and ‘spending money’.
Get to grips with the property
Ideally, this should be at least a quarter of the value of the property your child is eyeing up, but even a 10 per cent deposit would give them access to more competitive mortgage deals.
Bear in mind that inheritance tax might apply if you die within seven years of making a gift. To avoid this risk, consider a loan with monthly interest below the market rate.
But agree a repayment plan and formalise the arrangement using a ‘promissory note’, drawn up by a property solicitor.
This makes sure the money is registered as a loan and is paid back.
This involves you promising to meet mortgage repayments if your offspring fails to do so.
The agreement stays in place until the borrower has reduced the mortgage to an agreed level compared with the property’s value.
Better-off parents could even buy a property outright, but would incur capital gains tax if it was later sold as it would technically be their second home.
One way to avoid this is to get a solicitor to put the property into a formal written trust. You lend the trust the deposit and it then takes out the mortgage, which you need to guarantee.
The named beneficiaries of the trust – your children – can then become ‘life tenants’, giving them the right to live in the property rent-free, but the named trustees hold the titles to the property.
If you turn the property into a student let, you will have to pay income tax on rent, though the income could instead be paid directly to your child as beneficiary and, if they have no other earnings, could fall within their annual tax allowance of £11,000.
Kate Faulkner, a property expert at consultancy Designs on Property, says: ‘You have to invest for between 15 and 20 years to guarantee a return on buy-to-let. See it as a long-term investment first and a support to the child second.’
You could rent to students after your child graduates if the property is close to the university.
When they are finally ready to buy, help your children renovate a tired property and try ‘upcycling’ your old furniture for their benefit.
The whole family can learn about DIY and crafting through YouTube or courses at local colleges, which are sometimes free.
