It may sound ‘too good to be true’, but if you have a child who is about to embark on higher education, buying a buy-to-let property for them could enable you to meet the bulk of the cost out of tax savings, leaving any capital appreciation untouched, says Jennifer Hill in The Sunday Times.
If your child is over 18, you could buy a property on the basis that you will own 99% with your child owning the remaining 1%. You then enter a formal profit-sharing agreement with them so that any profits go to them. These profits will then be taxed at their nil (or low) rate of tax instead of your 40% rate. For example, if you bought a £200,000 student property with a net yield of 5%, providing an income of £10,000 a year, a higher-rate taxpayer would save up to £3,087 on that income. That income can then pay for your child’s living expenses.
Trusts are another option, says Andrea Watson in the Daily Express. They ensure that parents retain control, but because the property is held in your child’s name, there will be no capital-gains tax to pay when you decide to sell. Trusts are complex, however, so you should always seek independent advice.