Buying a first home is increasingly difficult.
So, helping your child onto the property ladder can be satisfying.
You’ll see someone you love and care about building a brighter future.
Here’s a guide on how to help child buy first home in the UK.
Is it common to help a child buy their first home?
Today, it’s far more common for parents to help their children onto the property ladder.
It was not as common in previous decades. Back then the gap between average incomes and average property prices was slimmer.
But as this gap widens, the ‘bank of Mum and Dad’ has become more prevalent.
One recent study found that 54% of parents have either given money to their children, or plan to do this.
Meanwhile, Zoopla lists the average amount gifted at £58,000.
Rules around gifting money to your child
It’s completely legal to gift your child a sum of money. And the amount you wish to give them is up to you.
Every year, each parent has a £3,000 tax-free gift allowance (at the time of writing). This can carry over to the following year.
You can also gift a child much more than this amount, if you wish. Some parents gift hundreds of thousands of pounds.
They will not usually have to pay tax on this if you live for more than 7 years after making the gift. But if you die within 7 years, inheritance tax will be due.
Gifts are not considered income by the government. There will not be any income tax to pay.
How to gift your child a sum of money
A solicitor can support you with this process. You should hire a qualified one who can help you to complete all the paperwork needed.
To start with, you’ll need to complete a ‘Deed of Gift’.
This is a legally binding document. It confirms that you’re transferring money to someone. It states that nothing is expected in return.
And it explains the parties involved, the amount being gifted, and any conditions.
Your child may have inheritance tax to pay if you pass away within 7 years of making the gift. Make sure to explain this to them at the point of doing it.
Once the money arrives, it can be used by your child to make a deposit on a house.
How to help your child to save up money
Another way to help your child buy their first house is to help them build healthy habits for saving money.
If your child lives at home, reducing the rent you charge them could help them to save up.
Or you could put aside the rent money they give you yourself, and gift it back to them when the time arrives.
Is there a limit to how much you can gift your child?
No. You can gift your child up to £3,000 without any tax being due.
You can also carry this over to the following year, giving a total tax-free allowance of £6,000. You’re only able to carry this over once.
You could also gift your child much more money (as much as you like). But this is only tax-free if you live for 7 years after doing so.
If you pass away before then, inheritance tax will be due.
Can you sell a house to your child?
Yes, you can sell a house privately to your child. You can also sell it for any price, including £1, if you wish. But there will be legal and tax implications to this.
When selling price below market value, capital gains tax applies to the difference.
And if you die within seven years of selling to your child, they could still be liable for inheritance tax.
This will be on the difference between the sale price and the property’s market value.
Your child may also need to pay stamp duty on the purchase, depending on the circumstances.
Other ways to help when your child buy their first home
You might offer to help them move in. This could be transporting items on moving day. Or you could gift them appliances you don’t need anymore.
You may also support them during the house buying process. This could include costs related to selling (legal fees, surveys, removal vans, etc.)
Sometimes, they’ll appreciate your input on properties they’re considering. Or you might recommend a solicitor that you’ve had a positive experience with.
