How to help a youngster financially
Thinking of helping out your children or grandchildren with some cash? Here’s how to avoid any pitfalls
GIVING A CASH GIFT If you can afford to give away money, it can be the simplest option. But there are issues to consider. Only give what you can afford (once it’s gone, it’s gone!). You can give away up to £3,000 a year without paying tax (you can also give cash gifts to a child or grandchild when they marry). But give away more and there may be inheritance tax to pay if you die within seven years of giving the money. It depends on the worth of property and any savings when you died.
Family mortgages
Mortgage lenders aren’t keen on a parent or grandparent lending money for a deposit because it makes the mortgage unaffordable if they ask for the money back.
One option is to take out a joint mortgage with your child or grandchild. Get advice from a solicitor or accountant about how to own the property, or you could end up with a tax bill when the property is sold. Some banks (a broker will know which) let parents or grandparents have their name on the mortgage without it being on the title deeds. But you’ll only be able to come off the mortgage if the lender is happy that your child can afford it on their own. Some banks let parents act as guarantors, meaning you agree to pay the mortgage if your child can’t. It’s a serious step so, as with all these options, take legal advice before you agree to it.
A few lenders offer specific ‘family’ mortgages. This could involve you moving some of your savings to that bank so they can be linked to your child’s mortgage. The link typically lasts for a few years and you can’t access your money during that time. If all the mortgage payments are made – and the property doesn’t fall in value – you get your savings back. Alternatively, you may be able to use some of your property’s value as collateral for a mortgage.