Alex Foster

Written by: Alex Foster

Alex Foster

Partner

Options for stepping onto the housing ladder

Data recently released by the BBC shows that people in their 20s who rent their property in 2/3 of Britain have to pay an 'unaffordable' amount in order to do so. Many continue living with parents or pay the higher rental costs in the market. But is there an alternative? 

It can be a depressing outlook - even those that can save enough for a 10 per cent deposit are still facing difficulties obtaining a mortgage due to wage inflation falling far behind property inflation (19 per cent compared with 173 per cent over the last two decades according to the Institute for Fiscal Studies).  So how do millennials move out from Mum and Dad’s?

Introduced in April 2017, the Government’s Lifetime ISA can assist those who are able to save. This tax-efficient account gives under-40’s a bonus equal to 25 per cent of the balance, up to a maximum of £1,000 per annum. The cash can only be withdrawn before 60 if it is used as a deposit for a first home. These accounts have proved successful – according to figures released, in the first year these accounts were valued at £517m. 

However for those who are unable to rent and save, then staying with parents is the inevitable solution. Or the 'Bank of Mum and Dad' can step in, but how best should they help? An outright cash gift would be the most straightforward for tax purposes with a potential inheritance tax charge should the parent(s) not survive the gift by 7 years. If the money would have remained in their estate until they died, then arguably the inheritance tax position is no worse. 

However, parents may not be comfortable with this kind of handout, favouring a loan or jointly purchasing the property with their children. The latter is fraught with tax complications – including a higher rate of stamp duty land tax on purchase if the parents already own a property and no main residence relief on the parent’s share of a gain on future sale.  A loan would avoid those costs, but if interest is charged this would be taxed on the parents.  A trust may offer a solution – providing control for the parents, no increased stamp duty land tax charge and no restriction on the relief from capital gains tax

The right solution will depend on the individual circumstances. With property ownership becoming increasingly difficult for the next generation, will the European focus on long-term rentals become the new aspiration?

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