22 January 2010
We recently looked at whether investing in the property market was worthwhile. We now consider how good planning and getting the right structure in place can benefit the different generations of a family.
From school fees to wedding plans, first homes to nursing homes – each stage of life has its own financial challenges.
With interest rates from banks and building societies at historically low levels, investing in property, especially when prices have fallen, can bring greater rewards, both in short term rental income and long term gains from any eventual sale.
To obtain the best advantages however, you need to be aware of the options available, which is where Chris Hardy, partner at B P Collins, can help.
While stressing that the cyclical nature of the property market means timing is important and any investment should be considered long term, she says doing so can enable all the family to enjoy the benefits at different times in their lives.
"Buying a property or granting a loan to enable another family member to do so, can be a good way of using funds to provide a regular source of income, and also provide an appreciating asset able to benefit the different generations when required," said Chris.
"Whether you can afford to purchase outright or if you have to take a mortgage, buying a property can be a very worthwhile and tax efficient decision and can be surprisingly flexible with good planning and the right structure in place."
Take a 'typical' Home Counties family with grandparents who want to help support their children’s finances by sending five-year-old grandson Johnnie and his young sister Olivia to public school.
Instead of simply contributing towards the school fees they could help purchase a property. One possibility is that a limited company could be set up to buy the property. The grandparents can grant the company a loan of funds and shares issued to the grandchildren. They can then benefit as dividends are paid which then provides funding for school fees.
"By lending their money to the limited company, the grandparents know their nest egg is safe as they have a first charge on the property, and can also generate income for themselves via interest on the loan," continued Chris. "At the same time, by investing in a buy-to-let property or other investment property, they have established an income stream for the younger generation, which can help see them through school and university fees.
"In later years, it may be that the grandchildren then decide to sell the interest in property – for example to fund the purchase of their own first home – and their parents, or possibly their grandparents, may choose to buy those shares, enabling them to have income to help fund their own pension or their increasing care needs." It would be important to note that the loan to the grandparents should be reviewed at this point.
Chris is keen to stress that everyone's circumstances will be different which is why, she says, it's important to meet clients and discuss their individual situation.
"For example, after the recent change in valuations it might be a good idea to review property assets to offset any losses against gains," she said. "In addition, there is a lot you can do with property to take advantage of the different tax bands and exemptions between Capital Gains Tax and Income Tax, especially if a property is held in more than one name.
"We can also advise clients on issues such as whether any property held in more than one name should be held as joint tenants or tenants in common, as the latter is more advantageous for tax planning purposes.
"Carefully considered, property investment can make a real difference for a family and bring many advantages. Our message to anyone looking to make that move in 2010 is come and talk to us first, it really can pay dividends."
To speak with a member of our property law team please call 01753 279053 or email resproperty@bpcollins.co.uk. For comprehensive, tax efficient estate planning advice tailored to your personal circumstances contact our private client team on 01753 279030 or email privateclient@bpcollins.co.uk.
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