With property prices expected to fall during 2023, parents may be thinking about getting their children onto the property ladder.

However, although help with a deposit does not raise that many tax issues, joint ownership can have expensive tax implications.

Generous intentions may come with tax implications this year. Whilst it’s true that half of first-time property buyers aged under 35 have received help from the bank of mum and dad,  it is important to understand what you’ll be facing this 2023.

Help with a deposit: tax implications

  • Outright gift: This will be treated as a gift for inheritance tax (IHT) purposes. There is no immediate tax cost, but it could mean more IHT is payable if the parent subsequently dies within seven years.
  • Loan: An interest-free loan arrangement avoids any IHT implications, but it could impact mortgage affordability calculations.

Stamp duty

Joint ownership is likely to mean upfront stamp duty consequences.

  • In England and Northern Ireland, first-time buyers can benefit from a nil-rate threshold of £425,000, saving a potential £8,750 compared to a normal purchaser. However, with joint ownership, all purchasers need to be first-time buyers to qualify for relief; parents are unlikely to qualify.
  • There is a similar, although much lower, relief for Scottish first-time buyers.
  • Furthermore, the inclusion of parents will probably mean that the stamp duty surcharge on second homes is payable. For property in England and Northern Ireland, this is 3%, with higher surcharges for Scottish and Welsh property.

The surcharge can mean an extra cost of £9,480 for a property purchase in England at the latest published average price (October 2022) of £316,000.

Capital gains tax (CGT)

CGT exemption on property disposal only applies if a property has been the seller’s main residence, and this again is unlikely to be the case for a joint-owning parent. The tax implications will probably be mainly, or wholly, at 28%. The future reduction of the CGT annual exemption to just £3,000 will not help.

A useful guide on helping a child buy their first home can be found here.

How can we help you?

If you are a parent and you are thinking about getting your child/children onto the property ladder and you need guidance about the impact this will have on your personal finances, then please contact us on 01444 716946 or on 01273 963656 or alternatively email us.