Helping Kids to Understand the Tax Implications of Buying Home

When kids embark on to buy a home for the very first time, it’s the parents who have to aid them in taking a wise decision before they go onto the property ladder. But, are you as parents better aware of the tax implications of buying a home for your kids?

Since home is the biggest purchase of our life, there are many legal prospects we have to go through before initiating the process. There is a complete research required to come up with the right choice. Home purchase comes up with the significant tax implications.

With the beginning of spring, home buying activities are heating up and suggesting the prospect home buyers to get their finances sequentially and work to get them pre-approved for a mortgage before they start the home hunting process.

Since more and more people are striving to buy a new home for their personal or other earning purposes or to rent a house, it’s become very crucial for buyers to know the tax implications and the deductions of turning a homeowner. If you are responsible parents and your kids are going to make the biggest decision of their life i.e. to buy a home, it’s important for you to give them a proper financial support.

Gift them with some deposit

When it comes to encouraging your child with buying a home, the most straightforward way of helping is to gift them some money. This will imply only a few tax implications, if you announce it that the money is given as a gift. Ideally, accompany the statement in a written documentation that the money is classed as the potentially exempt transfer. It means that the amount is tax free only if you live for seven years after the endowment. If you don’t, the money will still be considered as the part of your estate and could signify it is predisposed for inheritance tax if your intact estate worth over £325,000.

Loan the deposit money to your child

One more way is to give the deposit money to your child as a loan instead giving it simply. The interest rate which is required to be charged is all up to you– so you can also make it a interest free loan. Moreover, you are also free to choose the option of whether you want your child to repay the loaned amount in instalments or in a lump sum at the time of selling the home. Once again, you need to keep it clear that it’s a gifted loan. Don’t ignore the fact that the repayments that your child has to make will be included in their mortgage lender’s affordability calculations and will impinge on their frontier of borrowing money in the future.

Part-Owning the Home

Another way you can help your kids in buying a home is, buy a home for them, but list yourself as the part-time owner of the property. It means that you will be able to get the benefit from any increase in the boost of property price when they would sell it but don’t forget that it has most completed tax implications. As part of the house is in your name, it will be classed as the part of your estate and thus it would be liable for the inheritance tax, if the overall estate is worth more than £325,000. Apart from this, when the house would be sold, any profit that you will make on your share might be liable for the capital gains tax since it’s not your major residence.

Tie your savings to their mortgage

If you don’t want to give away your savings to your kids in buying their home or invest in their purchase then you have another way to help them. And this is to tie your savings to their mortgage. It means that your money will still be yours, but your child will too get help onto the property ladder. This system helps in keeping your taxes quite simple. Since you still own your money, it is potentially, inheritance tax would be applicable on this and the interest earned would have the tax deducted.


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