The recent introduction of a stamp duty surcharge of three percentage points on second home purchases will understandably make many people think twice before buying another property. But for those parents who had previously considered buying a buy-to-let to eventually hand over to their children, there may be a way around this, writes Richard Dyson in The Daily Telegraph.
If your child is over 18 and you don’t want to just hand over the cash for them to buy their own house straight away, you can set up a trust (the type of which will vary depending on how much control you want to retain), naming your child as beneficiary of the property. When buying property through a trust, HM Revenue & Customs treats the trust’s beneficiary (in this case, your child) as the buyer. Assuming that your child doesn’t already own a property, this means that the purchase will not be subject to the new stamp duty surcharge.
This method can also be useful from a capital-gains tax (CGT) perspective. If the property is the main residence of the child – for example, if they live in it while at university – it will benefit from CGT relief. However, you need to make sure that any savings won’t be eclipsed by other tax consequences, such as inheritance tax charges. And, importantly, this wheeze only works if your child is over 18. HMRC has drafted legislation confirming that where beneficiaries are minors and parents as trustees own other property, the higher stamp duty would still apply.