WHY WAIT FOR THE WILL?
By Kay Hill
One day you probably plan to leave money to your children in your Will – but an increasing number of people are choosing to help while they can see the results, and give the younger generation a boost on to the housing ladder
As house prices have climbed, so has the age of first time buyers. Back in the 1960s, the average age to buy a first home was 23 years old. Now the average is 33, while in London, first time buyers average 37 years old1. It goes a long way to explain why so many of the younger generation boomerang back home to mum and dad (although it could just be your cooking and laundry skills…).
The good news is that if you are willing and able to help (if only to get your spare room and TV control back) there are several ways to do so.
Give them a gift
There’s nothing to stop you giving whatever you like to whomever you want. However, because the Inland Revenue doesn’t want to be cheated out of Inheritance Tax (IHT) by people giving everything away on their deathbed, there are caveats. If you give away a large amount of money then die within seven years, the Government can count that money as part of your estate for IHT. They won’t charge the person you gave it to, but your beneficiaries might have to pay more IHT on your estate. You should keep a clear record of what you gave away, when and to whom, in case this becomes relevant.
You can give away £3,000 each year (and carry the unused allowance forward for one year) without risk of IHT by using your annual gift allowance. So if you didn’t make a gift the previous year, you could give your child £6,000 on the last day of the current tax year and a further £3,000 the following day.
Solicitors will want to see proof that money from parents is a true gift, not a loan or an expectation of a share of the property, so you will need to fill in a legal declaration, prove your identify and provide evidence of where the money has come from. You need to be sure that this is something you want to do, that it doesn’t leave you financially unstable and that you trust your child to use the money wisely, as once it’s done there’s no going back!
Act as guarantor
If you are working and have a good income you may be able to help your child without parting with any cash, by acting as a mortgage guarantor. This reduces the risk to the lender, meaning a larger loan and/or a better mortgage rate for your child, as you must pay the monthly repayment if your child defaults.
You may be able to help your child by securing part of their mortgage on your home rather than the property they are buying. This means they can borrow up to 100% (although be warned that legal fees can be high and it might prevent you from moving house yourself).
Lock away your savings
One of the easiest win/win ways of helping your child is through a family deposit mortgage, where you lock away your savings with your child’s mortgage lender. They can borrow more money at a better interest rate, while you usually receive interest on your savings. After a fixed period, or when a certain amount has been repaid, you are free to withdraw your money.