Cash clinic: Keeping a clear head when helping your child on to the ladder

Buying a property with your children is not without pitfalls

Q My eldest son has just started his first job after university and on his present salary can't afford to buy a flat on his own. I am keen to help him get on the property ladder by contributing towards his first property but I am unsure of the best way to go about this. Should I contribute towards the deposit, be a guarantor on his property, buy it jointly with him, or is there another option you would advise? I am keen to maximise the money I put towards the property and not have it swallowed up in taxes. Any advice you can offer would be most appreciated.

AJC, Stirling

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AIn the current economic climate it is becoming increasingly difficult to get a foot on the property ladder, and parents are stepping in to help their children in a number of different ways. You have mentioned several options, which can all impact on your personal taxation position.

Should you decide to contribute towards the deposit, you will have made a gift to your son which will be regarded as a potentially exempt transfer (PET), which may expose your estate to an inheritance tax charge (IHT) should you not survive for seven years from the date of the gift.

There is an annual exemption (currently 3,000) that can be offset against such a gift. However, should your son have sole title to the property and take the mortgage in his name only (perhaps with you guaranteeing the loan), the value of the property will not be included in your estate for IHT purposes, which, if the value of your other assets exceeds 325,000, could save tax on the value of the property at 40 per cent. It may be that even after helping with the deposit you will still be required to be a guarantor in respect of the mortgage over the property. This obviously has financial implications should your son default on the payments and you should take financial advice prior to making such a commitment. I would advise you to take a security over the property or at least enter into a Minute of Agreement with your son to cover unforeseen circumstances.

As such, as stated above, you will not be liable for IHT on the value of the property, nor will you liable for capital gains tax (CGT) on the eventual sale. Also, your son would not be liable to CGT as the property would his main residence, and any uplift of the value is exempt from tax.

Your son as a first-time buyer may enjoy exemption from stamp duty, which of course would not benefit you if you were to take title.

However, should you decide to buy the property jointly, the value of your share of the property will be added to your asset base, and may be liable to IHT on your death. CGT will also be payable on the uplift in value of your share. Stamp duty exemption would probably not be available. You would, however, retain control of the property by having a title to a share of it.

• Glen Gilson is a partner and head of private client and financial services and Alastair Shepherd is a property partner in the private client and financial services department of HBJ Gateley Wareing.

If you have a question you need answered, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.