Can I Buy a House and Put it in My Child’s Name?

Buying a property in your child’s name in the UK is an option that appeals to many parents, especially as a means of securing their children’s financial future or getting an early start on the property ladder. However, this arrangement has significant legal, tax, and financial implications. Here is a comprehensive, in-depth guide on the topic, covering everything from the legal feasibility and tax responsibilities to practical strategies for purchasing and holding property in a child’s name.


Section 1: Introduction – Why Parents Consider Buying Property for Their Children

Many parents aim to invest in property for their children as a way of providing financial security and preparing for rising property prices. Property ownership can be a valuable tool for long-term financial stability, and for some families, it may also be an effective inheritance strategy.

Common Motivations for Buying Property for a Child:

  • Long-term Investment: Purchasing property in a child’s name allows families to benefit from long-term property appreciation.
  • Future Housing Security: Parents may want to ensure their child has a home when they reach adulthood or enter university.
  • Inheritance Planning: Property investment can play a role in passing on wealth to the next generation while potentially minimizing inheritance tax.

Initial Considerations

When purchasing property in your child’s name, there are critical points to consider:

  1. Age Restrictions: UK property law restricts property ownership to individuals aged 18 and over. Younger children cannot legally own property.
  2. Tax Implications: Such an arrangement has tax considerations, including income tax, capital gains tax, and inheritance tax.
  3. Financial Management and Control: Understand the implications of holding property for a minor, including management responsibilities and financial control.

Section 2: Legal Considerations for Buying Property in a Child’s Name

Buying property in the name of a minor requires navigating certain legal constraints, as UK law restricts individuals under 18 from owning property outright.

Using a Trust for Property Ownership

To hold property for a minor, parents commonly use a trust arrangement. In this setup:

  • Parents or Guardians as Trustees: The property is placed in a trust, with parents or other appointed guardians acting as trustees.
  • Legal Ownership: Trustees hold legal ownership, but the child retains beneficial ownership, meaning they will receive the property when they come of age.
  • Trust Terms: Trustees manage the property according to the trust’s terms, potentially using rental income or sale proceeds for the child’s benefit.

Types of Trusts for Property Ownership

  • Bare Trust: The child becomes the outright owner of the property at 18, with minimal ongoing tax obligations during the trust period.
  • Discretionary Trust: Trustees have discretion over how and when the child will receive property benefits, providing greater flexibility but with more tax considerations.

Legal Advice and Trust Deeds

Setting up a trust requires proper legal documentation, usually in the form of a trust deed. Consulting a solicitor is essential to structure the arrangement effectively, ensuring it meets legal requirements and reflects the family’s intentions.


Section 3: Tax Implications of Buying Property for Your Child

Tax planning is a critical component of buying property in a child’s name, as it impacts both the parents and the child.

Stamp Duty Land Tax (SDLT)

When purchasing a property, SDLT may apply, depending on the property’s purchase price and whether the child or the parents own additional properties:

  • Standard SDLT Rates: SDLT applies to any property purchase above £250,000 for first-time buyers.
  • Additional Property Surcharge: If the child is a minor, trustees (typically the parents) might be liable for the 3% SDLT surcharge if they own additional properties, even if the property is technically held for the child.

Capital Gains Tax (CGT)

CGT can apply if the property is sold in the future. Understanding when and how CGT will apply is essential:

  • Primary Residence Exemption: CGT may be minimized if the child uses the property as their primary residence in the future.
  • Ownership Period and CGT Calculation: When the property is sold, CGT will be calculated based on the gain over the ownership period, minus the child’s annual CGT allowance (currently £12,300 as of 2024).

Income Tax

If the property generates rental income, income tax is due based on ownership:

  • Trust Income Tax: When held in trust, rental income is taxed at the trust rate, and trustees may be liable for income tax on rental earnings.
  • Child’s Income Tax Allowance: If the child is the beneficial owner and earns below the personal allowance (currently £12,570), tax liability can be minimized.

Inheritance Tax (IHT) and Gifting Rules

Parents often gift properties to their children to reduce potential IHT liabilities.

  • Potentially Exempt Transfers (PET): If the property transfer is considered a gift, it qualifies as a PET. If the parents survive for seven years after gifting, the transfer may be IHT-free.
  • Trust-Based Transfers: Properties held in trust have specific IHT treatment, with certain trusts incurring IHT charges every 10 years.

Section 4: Financing the Property Purchase

Buying property in a child’s name may require creative financing solutions, as mortgage providers are cautious about lending to children or trust-owned properties.

Mortgage Options

  1. Parental Mortgage: Some parents take out a mortgage in their own name and then establish a trust for the child.
  2. Guarantor Mortgages: In some cases, parents act as guarantors on a mortgage under the child’s name once they are of legal age.
  3. Cash Purchase: If financially feasible, purchasing the property outright with cash is simpler, avoiding mortgage restrictions.

Gifted Deposits and Family Lending

If gifting a deposit or financing the purchase, parents must comply with HMRC’s rules on gifts and record keeping to avoid tax implications for themselves and their child.

Ongoing Financial Responsibilities

Parents should consider ongoing costs, such as maintenance, property taxes, and potential mortgage repayments, which may need to be funded by the trustees or as part of family budgeting.


Section 5: Managing the Property on Behalf of Your Child

Owning a property on behalf of a minor requires management by trustees. This section discusses practical considerations for day-to-day management, legal compliance, and protecting the property’s value.

Renting Out the Property

If the property is intended as an investment, trustees may choose to rent it out until the child is ready to live in it:

  • Rental Agreements: Establishing clear tenancy agreements and ensuring compliance with landlord regulations are key.
  • Using Rental Income: Income generated from rent can either be saved for the child’s benefit or used to cover property expenses.

Maintenance and Upkeep

Properties require regular upkeep to maintain value. Trustees are responsible for maintenance and repair, which may be funded through rental income or family resources.

Insurance and Liability

Ensure the property has appropriate building and landlord insurance to protect against potential losses. Trustees should manage these policies carefully to mitigate risk.


Section 6: Potential Risks and Challenges

While buying a property in a child’s name has advantages, it also carries risks that parents should prepare for:

Loss of Parental Control

When the child turns 18, they gain full control of the property, which may differ from the parent’s original intentions.

Property Market Volatility

As with any investment, property prices can fluctuate. Market downturns may impact the property’s value, potentially reducing the anticipated financial benefit.

Changing Tax Regulations

Tax laws are subject to change, and tax benefits available today may not remain in the future. Consult tax advisors periodically to ensure the arrangement remains tax-efficient.


Section 7: Alternatives to Buying Property in a Child’s Name

If direct ownership isn’t feasible or desirable, there are alternative ways to assist your child financially.

Setting Up a Savings or Investment Fund

Parents can build a savings or investment fund that can later be used to purchase property when the child is an adult. Junior ISAs or child trust funds are tax-efficient options.

Help to Buy and Shared Ownership

For older children, Help to Buy and shared ownership schemes offer government assistance with property purchases, allowing them to own a portion of the property while paying rent on the remainder.

Joint Ownership

Parents can co-own property with their child, allowing for shared responsibilities and the opportunity for the child to gradually buy out the parent’s share over time.


Section 8: Step-by-Step Guide to Buying Property in a Child’s Name

Here is a step-by-step outline for navigating this process:

  1. Seek Legal and Financial Advice: Professional guidance will clarify tax implications and legal requirements.
  2. Choose an Ownership Structure: Decide on a trust arrangement or joint ownership.
  3. Establish a Trust Deed: Work with a solicitor to document the trust’s terms, ensuring it reflects your intentions.
  4. Obtain Property Financing: If a mortgage is required, explore family-backed options or secure cash funding.
  5. Purchase the Property: Complete the property purchase, ensuring SDLT and other fees are accounted for.
  6. Register the Property with HM Land Registry: Ensure ownership details reflect the child’s beneficial interest or the trust structure.
  7. Manage and Maintain the Property: Arrange for property management, rental agreements, and maintenance as necessary.
  8. Periodic Tax and Legal Review: As tax laws change, periodic reviews with advisors help optimize the arrangement.

Conclusion: Is Buying Property in a Child’s Name the Right Move?

Buying property in your child’s name offers financial benefits but requires careful planning to mitigate tax liabilities, comply with legal regulations, and manage financial obligations. Working closely with legal and financial advisors ensures that the arrangement aligns with your goals, protects your investment, and benefits your child in the long term. While it’s not suitable for every family, this strategy can be a valuable way to provide security and set up future financial stability for the next generation.

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