Q My 30-year-old son pays so much rent that he is struggling to accumulate enough collateral to buy his first apartment. I have some money to spare and am happy to help by making a large deposit. He will probably get a mortgage of about £ 150,000 and I will pay the £ 100,000 bond. He lives and works in Windsor, so real estate and rent are expensive.
I would like two-fifths of the apartment to belong to me, and three-fifths to him. I will leave him my share in my will, so that he will eventually own everything.
Could you advise what the legal and financial implications of this agreement will be? For example, will it be easy to apply for a mortgage and are there any tax implications (including stamp duty, inheritance tax, etc.)?
A The first thing that came to my mind when I read your letter was the question: “Why, if you want your son to have all the property after your death, you just don’t give him money and don’t let him buy in his own name. Now? “One reason for the question is that if you buy an apartment as a co-owner, your son will not receive Stamp Duty Land Stamp Tax (SDLT) relief on first-buyer. This is the first £ 300,000 of the purchase price of a property worth up to £ 500,000 without SDLT with a 5% commission on the remaining £ 200,000, while first-time buyer assistance is only available for joint purchases if both or all co-owners are first-time buyers and intend to borrow property in as my only or primary residence. ”Then I realized that since the purchase price is likely to be £ 250,000, there will be no SDLT account anyway because it falls into the £ 250,000 zero rate band. I remembered that buying a second property (sole or joint) means that the higher SDLT rate applies to all th purchase price. So – and assuming you already own the property – instead of a £ 0 SDLT account, there will be a £ 7,500 (3% of £ 250,000) account. Of course, if you don’t already own the property, you can ignore what I just said about the higher SDLT level as it doesn’t apply.
With regard to inheritance tax, now that you give your son cash, it is possible to avoid it, provided that you are alive seven years after the gift was given. If you left your share of the apartment to your son in your will, the value would definitely become part of your estate and inheritance tax might be paid.
There is also the added complication of capital gains tax for you – but not your son – which can come from any gains you make from your share when the apartment is sold or you decide to give your share before you die.
If you choose to ignore me entirely and continue your purchase with your son, I suggest using an independent mortgage consultant to help you find the best mortgage for your unusual circumstances.