Tax law for the Bank of Mum and Dad

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.

So, it is wise to seek legal advice from your property lawyer regarding Bank of Mum and Dad tax implications before proceeding with a BOMAD transaction.

Inheritance Tax

If you gift money towards a property purchase but die within seven years of the gift, some or all of that will be added to the value of your estate and therefore may be subject to Inheritance Tax.

The amount of tax levied on your estate is determined by the rules the government lays out in relation to Potentially Exempt Transfer (PETs). The potential tax liability reduces over those seven years – the longer you live after making the gift, the lower the tax liability. You can find out more about PETs here.

You should take legal advice from a solicitor who is experienced in the issues relating to stamp duty and Bank of Mum and Dad mortgages for family members before making any decisions or signing any documentation.

Stamp Duty

If you already own a property the Stamp Duty Land Tax 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 – £250,000 0% 3%
£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.

Contact us

Wellers Law Group has a team of specialist solicitors who can provide you with legal advice in relation to all aspects of guarantor mortgages, Help to Buy and first-time property purchases.

If you would like legal advice and detailed circumstance-specific information relating to inheritance tax, stamp duty and capital gains tax, please call us. We have a number of offices in and around London that may be convenient for you to contact but we will be able to help wherever you are based.

If you would like to get in touch with us online to discuss your options in relation to a BOMAD property purchases or guarantor or offset mortgage, you can fill out our enquiry form and we will get back to you.

London City office: 020 7481 2422
Bromley office: 020 8464 4242
Surrey office: 01483 284567
Sevenoaks office: 01732 457575
Chislehurst office: 020 8295 1989

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