| Help for your children |
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| Written by Jonquil Lowe, 2008 | |
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Page 2 of 2 Joint mortgage You could opt for a joint mortgage even though only one of you will be living in the property. Each of you is jointly and severally liable for the whole loan, meaning that if one of you does not pay your share, the other must pick up the shortfall.The intention may be that your child will meet all of the repayments or you might be willing to chip in. You also take a share in the ownership of the property and this has tax implications. There is no CGT when you sell the only or main home you live in and that will apply to the part of the home owned by your child. But, because you do not live in the property, there could be CGT on your share when the home is sold. In 2008-09, CGT is charged at a flat rate of 18 per cent on any gain over £9,600. For example, suppose you and your child had bought a home for £160,000, owning half each, and sold it for a £50,000 profit. CGT on your share would be 18 per cent x (£25,000 - £9,600) = £2,772. Your share of the home also counts as part of your estate for inheritance tax purposes. Family offset mortgage With a normal offset mortgage, you have a savings account and/or current account with your mortgage lender. The accounts do not earn interest as such. Instead, the money in the accounts is deducted from your outstanding mortgage each month before working out the interest. So, the higher your savings, the lower your mortgage repayments.A few lenders offer family offset mortgages. Parents (and other family members) can invest their savings in separate accounts with the lender, which are then all offset against a designated person's mortgage - in this case, your child's. In effect, you are giving up the interest you would have had on your savings in order to reduce your child's monthly repayments. Your child, not you, owns the home. New parents and grandparents take noteChild Trust Funds (CTFs) have just celebrated their third birthday, allowing every child born after 1 September 2002 to receive £250 (or double that if the family is on a low income) from the government. Yet 25 per cent of parents who have been issued with CTF vouchers leave them untouched. Since the introduction of the CTF, over 750,000 vouchers have been left to expire.Once the CTF voucher has been issued, parents have a year to open an account and invest their voucher as either cash or shares. Parents, grandparents, family and friends can also add up to £1,200 to the fund every year tax free, and once the child turns seven, the government will put in another £250 or £500. The money can't be touched until the account-holder is 18, when the money can be used as the child wishes. The idea behind CTFs is that the investment will grow to give children a financial kick-start at the age of 18, all tax-free. Further information
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