Parent helping children buy a property

Question

Hi want to help my daughter buy a home . I like simple but I also want to protect the asset as much as possible from her live in boyfriend. I want to avoid capital gains tax where possible . I was especially interested in page 78 of " Winning Property Tax Strategies " regarding setting up a contract with parent & child to ensure the main residence exemption completely covers the property . Some internet articles suggest a loan facility but I like the idea of a joint tenancy arrangement that maintains the value of my contribution to her property. Also I like the simplicity of the property passing to her on my death with no wills involved. I have 2 other daughters so am likely to do something similar for them . Instead should I be thinking about some trust structure instead with this longer term goal in mind ( although I recoil from the suggestion of anything vaguely complicated). Thank you for your help , regards David

Answer

I can’t see a way that a trust would improve the situation unless you are also worried about a spouse or creditor of yourself attacking your share of the property.
It seems to me you are saying that lending the money to your daughter would achieve your goal except that this would fix your interest in the house to the amount of the loan so you would not benefit from the capital growth.
The strategy I discuss in my book is simply to sell the property to your daughter with settlement taking place at a later date, usually when the bank allows. The trick is that the CGT event takes place when the agreement to sell is entered into, which you do at the same time as purchasing the house from a third party. Because of the non arms length nature the sale will be deemed (for CGT purposes) to take place at market value at the time of the CGT event. The market value will be the price you and your daughter paid for the property because the contract to buy the whole property and the contract to sell your half to your daughter are all entered into on the same date. This means no capital gain is made at that date. The fact that settlement is many years later is irrelevant and CGT event B1 allows your daughter to cover the whole property with her main residence exemption during that time. This strategy will allow you to have your name on the title for a defined period time, but won’t give you a right to the capital growth of the property. After all that is the plan so that you are not exposed to CGT.
In short if you want a legal right to the capital growth you are going to be up for CGT on that growth. Possibly the loan arrangement will give you closer to the result you want by taking a mortgage over the property for more than the amount you give your daughter so that in the event of a breakup there is less equity but you would need to check with a solicitor to see if this sort of artificial arrangement would be effective in the family law court.
Neither of these strategies will help you simply pass the property to your daughter upon your death. With the loan arrangement you would have to forgive the debt in your will. With the agreement to sell many years before settlement your estate would still have a right to the proceeds of that contract.
Another consideration might be a pre nuptial agreement between your daughter and her boyfriend. In fact your wish to, quite rightly, protect your interest from him may give her a good excuse to protect her own interests without offending him.

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