Q My 30-year-old son is paying so much in rent that he is struggling to save a big enough deposit to buy his first flat. I have some spare cash and am happy to help by providing a big deposit. Probably, he will get a mortgage for about £150,000 and I will pay a £100,000 deposit. He lives and works in Windsor, so property and rent are expensive.
What I would like is for the flat to be two-fifths owned by me and three-fifths owned by him. I will leave my share to him in my will, so he will eventually own it all.
Please could you advise on what the legal and financial implications of this arrangement will be? For example, will it be straightforward to apply for a mortgage, and are there any tax implications (including stamp duty or inheritance tax and so on)?
A The first thing that popped into my head on reading your email was this question: “Why, if you want your son to have the whole property after your death, don’t you just give him the cash and let him buy in his sole name now?” One of the reasons for the question is that if you buy the flat as joint owners, your son won’t get the benefit of first-time buyer stamp duty land tax (SDLT) relief. This makes the first £300,000 of the purchase price of property costing up to £500,000 SDLT-free with a charge of 5% on up to the remaining £200,000. And first-time buyer relief is available for joint purchases only if both or all joint owners are first-time buyers and intend to occupy the property as their only or main residence. Then I realised that as the purchase price is likely to be £250,000, there wouldn’t be an SDLT bill anyway because it falls into the £250,000 nil-rate band. But then I remembered that the purchase of a second property (whether sole or joint) means that the higher rate of SDLT applies to the whole purchase price. So – and assuming that you already own property – instead of an SDLT bill of £0, there would be a bill of £7,500 (3% of £250,000). Of course, if you don’t own a property already, you can ignore what I’ve just said about the higher rate of SDLT as it doesn’t apply.
As far as inheritance tax goes, giving your son the cash now has the potential to avoid it provided you are still alive seven years after having made the gift. If you were to leave your share of the flat to your son in your will, its value would definitely form part of your estate and inheritance tax might become due.
There is also the added complication of capital gains tax for you – but not your son – which may become due on any gain you make on your share when the flat is sold or you decide to give away your share before you die.
If you decide to ignore me altogether and go ahead with the joint purchase with your son, I suggest using an independent mortgage adviser to help you find the best mortgage for your non-standard circumstances.