In helping your child to own their own property by means of a loan or a gift it is wise to be aware of a few potential tax implications. Your transaction can affect at least three different types of tax.

Inheritance Tax

If you gift money towards a property purchase, as you may have read elsewhere, some or all of that capital will form of your estate if you were to die within seven years of the gift and could be subject to Inheritance Tax. Your gift is what is termed a potentially exempt transfer (PET). The potential tax liability reduces over those seven years and you can find out more about PETs here.

Stamp Duty

If you already own a property the Stamp Duty charge you pay when you buy a second or third property is higher, as set out in the table below. This will impact you if you are buying the property in your name for the benefit of a child.

Stamp Duty Calculator

Purchase price of property Rate of Stamp Duty Buy to Let/ Additional Home Rate
£0 – £125,000 0% 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1,500,000 10% 13%
£1,500,000 plus 12% 15%

Capital Gains Tax (CGT)

If you are directly involved in purchasing a property with your child and you already have your own home, it will be construed as an investment on your part. As such it will be subject to tax when it is sold. The rate of CGT is 18% for a basic rate taxpayer and 28% for an additional rate taxpayer. The annual allowance for capital gains is £11,700 for 2018/19, rising to £12,000 the following tax year. Married couples can combine their allowances for jointly owned assets.

As a part owner of a second property you will pay the proportion of the growth in value between buying and selling, attributable to your share of the property. However estate agent fees, legal fees and Stamp Duty are considered allowable costs that can be deducted from the exposure to CGT. It is wise to talk to a financial adviser about the implications for your particular circumstances.

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