Although the property investment market is not very active at the moment there are parents now looking for a bargain and buying property for their children. With the benefit of decreasing property prices many parents are considering buying a property now rather than waiting for children to get older and then provide them with cash lump sums to make a property purchase.
The main benefits of buying now are (1) the prospect of future capital appreciation and (2) the hope that loan repayments if a loan is involved will be covered by rents from the property. However obtaining loan finance for property investment is quite difficult at the moment.
In separate posts, we will examine the most common strategies for parents who buy now for their children and look at the estimated outcome of the different alternatives.
The most common methods for parents to purchase a property are:
- Property owned by parents until children are old enough to take possession and the parents are happy to give it to them.
- Property bought jointly with children so that the child has an equity interest in the property from day one.
- Property bought in the child’s name only with parents acting as guarantors on the loan.
- Use of companies or trusts to acquire the property with the children as beneficiaries of the trust or shareholders in the company.
In each of the above situations, the following items need to be considered when dealing with the property:
- Financing the acquisition
- Income Tax on rental income from the property
- Capital Gains Tax, Gift/ Inheritance Tax and Stamp Duty on any sale or transfer of the property or interest to a child.