Is your child thinking of university?
Read these useful points if you are considering buying a property for your child to live in during their university years.
Now this might seem like a strange blog topic for ESPC but if your child is growing up fast, enjoying the summer now the exams are over and planning on moving out for their university studies you may want to consider buying a property.One of our solicitor estate agent members, Matthew Gray from Pagan Osborne provided these useful points for the ESPC Paper this week which covers all you need to know!
Do your homework on student properties
- Do your research carefully and talk to a local agent who knows the area.
- Ownership of any property could be in the name of the parents, the child or jointly. For capital gains tax purposes any gain on the sale of a property which is owned and occupied by an individual as their main residence will be exempt under the principal private residence rules. Whereas, if a property is owned by someone who does not occupy the property as their main home, any increase in value from the purchase cost leading to a gain on sale will be chargeable to capital gains tax.
- Funding may be a problem if the title of the property is taken in the name of the child. Where do they obtain the wherewithal to fund the purchase? If it is from a mortgage, then the parents may need to act as guarantors. You also need to bear in mind that if they are on the title of the property just now, then assuming the legislation doesn't change, they would not be first-time buyers when they come to buy a property for themselves in their own rights.
- Gifting funds for a child to purchase property can also be sensible in relation to inheritance tax planning and can help to reduce potential liability on death.
- If it is intended that other bedrooms in the property will be rented out then consideration should be given to income tax as the owner will be required to report the rental income to HMRC. If the property is in the name of the parents then the income tax liability will be theirs. However, if the child owns and occupies the property the rent received from other occupiers can be completely exempt from income tax (up to £4,250) under the special Rent a Room provisions.
- A further consideration may be that a three bedroom property can be occupied by the child and two friends without the requirement of an HMO (Houses in Multiple Occupation) licence, if the title is owned by the child.
- HMO licences are non-transferrable and you cannot apply for one until you are the owner the property. There is no automatic right of transfer on an HMO license and legal guidance should always be sought at an early stage of purchase.
- Legally, it is the child and their flat mates who will be jointly and severally liable and responsible when they sign a tenancy agreement and not the parents.
- Any 'gift' of a property is irrevocable.
- If you have more than one child, there may need to be similar provisions for other children. A frequent cause of family disharmony is one child appearing to be favoured over another, something that maybe taken account of in a Will when lifetime gifts are highlighted.
Matthew Gray, property services director at Pagan Osborne, said:"Buying a property for your child gives you the peace of mind they are settled in a good-standard property with a caring landlord. It also means that, during the time of their studies, that your investment in their education goes further than their degree and that you will own a property and paid off a chunk of the mortgage. You then may decide to keep the rental property or sell on."