Increasingly, parents are finding their children either still at home in their 20s and 30s or returning home after university. It’s a phenomenon that’s given rise to the term ‘Boomerang Generation’.
We love our children but how can we help them get started and stand on their own two feet? What if you could do this and gain some attractive inheritance tax (IHT) breaks along the way?
1. Help your children get a foot on the property ladder
As property prices rise again, it’s getting harder and harder for our children to buy their first home or step up onto the next rung of the ladder if they’re already on it.
Several lenders now offer mortgages where parents can join forces with their children to secure a more affordable mortgage. With attractive rates and using the parental home as security, it can bring forward the date your children flee the nest quite considerably.
2. Gift money to your children
If using your property as security doesn’t sit too comfortably with you, you could use your £3,000 annual IHT gift exemption allowance and make small regular payments to your children’s savings account.
You can gift larger sums of money, but you need to survive for 7 years after giving the gift in order for it to be inheritance tax-free.
3. Charge them rent
If they’re working and they tell you they’re trying to save but strangely making little progress, you could force the saving by charging them rent. You put the money into a savings account and return it to them in due course.
Sometimes, in the words of Nick Lowe, “you’ve gotta be cruel to be kind — in the right measure!”. As long as you don’t receive more than £625p.m. (!), there’s no tax implication for you.
4. Get Government help — but be quick!
Your children could benefit from a 25% Government bonus if they invest in a Help to Buy ISA, but they must take it out before the 30th November 2019, as these products are being withdrawn.
They can save up to £200 a month and also kickstart the account with a lump sum of up to £1,200 in the first month. However, the investment is merely a cash holding so, other than the 25% bonus, the returns are low – but low risk.
There are various conditions, of course, but if they manage to save the maximum £12,000 they could benefit from a £3,000 bonus.
Note: To get the £3,000 bonus they must be buying their first home – it’s actually their solicitor or conveyancer who applies for the bonus from the Government.
5. Set them up with a Lifetime ISA
A better alternative might be a Lifetime ISA which also benefits from the 25% bonus if used for a first home purchase, or if used as a pension investment. These can hold equity-based funds so they may have better long-term growth potential. Also, LISAs can accept a larger contribution of £4,000 per annum.
Always remember, the value of equity investments can go down as well as up, so they could get back less than invested.
6. Monthly contributions
If you’ve been regularly paying school fees or other child-related expenses from your normal income, you could consider helping them with a monthly contribution.
You do need to be a little careful of the tax rules, especially if the child is under the age of 18 (Help to Buy ISA is available from age 16), as there are tight rules regarding interest a child can receive on money gifted by a parent – which by the way doesn’t apply to gifts from grandparents…now there’s another thought!
However, if your children are aged 18 or over, gifting in this way should be fine and if there has been a pattern of regular payments (e.g. school fees) then a continuation of a small, regular, affordable gift from your income should be IHT exempt.
7. Secure your children’s longer-term wealth with a pension
By the time your children leave university, they will be in debt. The housing market will also zap a high percentage of their income, leaving less for them to direct towards saving for later life, let alone retirement.
By kick-starting a pension for them, your ‘gifted’ money will not only grow over a long period of time, but it will also benefit from the appropriate tax relief added to it each year by the Government. Better still, your children can’t access it until they’re 55. This age is most likely to rise to 57, so you don’t need to worry about it being frittered away before then!
According to the Office for National Statistics†, ‘multi-family households’ are the fastest-growing household type over the decade to 2017! Increasing by 42.1% from 215,000 households in 2007 to 306,000 households in 2017. Although some of this is accounted for by elderly parents moving in with their grown children, this is a significant figure, and those ‘boomerang kids’ fall firmly into this, many bringing their partner or spouse home with them too!
Whilst we do love having our children around, sometimes it’s nice to have the time and space away from them – just so we can miss them, naturally! A little help to get them on their way is always welcome on both sides.
What financial ‘incentive’ have you put in place to give your children that gentle nudge out the door when the time comes? Let us know below.
Source: † Office for National Statistics