The changing world of the Bank of Mum and Dad
Those millennials, walking round like they rent the place…
The truth is, our kids have never had it so bad.
According to a recent study, half of UK millennials – those people born between 1980 and 1996 – will be living in rented accommodation into their 40s and one-third will rent into their retirement, unless there is a radical change in taxations, funding for public housing and a reform of the private sector.
Renting on this scale will put the UK on more of a par with Germany, where only 52 per cent of the population own their own home.
What’s the problem? Germany’s renters do so happily in the main. But that’s largely due to indeterminate tenancy leases which means those who want to stay in their rented accommodation their whole lives can usually do so. That, and the fact German local authorities can cap rent increases on new lettings in their areas if they see the market overheating.
Perhaps a German’s apartment can really be his or her castle.
In sharp contrast, the UK’s ‘assured shorthold tenancy’ model gives landlords the right to remove tenants with just two months’ notice and there is no price capping in place.
Estimates of the impact of ‘cradle-to-grave’ renting suggest a near doubling of the housing benefit bill as low-income renters need more support to pay their rents in their old age.
Long-term renting will also bring about a change in the role of the Bank of Mum & Dad, which in recent times has seen more and more parents gift their children the money to pay for a deposit on a house purchase.
As the size of deposits requited to purchase property continue to spiral out of the reach of many mum and dad bankers, baby boomers are now turning to renting themselves and gifting their own properties to both Generation X and the Millennials.
Gifting a property to children is perfectly legal and many choose to stay in the property themselves.
However, if you are planning on gifting a property to your children, there are some potential costs and considerations to bear in mind:
1. If you die within seven years of property transfer there will be Inheritance Tax payable as this will not be regarded as a Potentially Exempt Transfer (PET)
2. An outright gift of property means you are giving up the right to take rental income
3. If you remain in the property, you can pay rent to your children to take it out of the IHT net, but this will need to be at market rate, and they will need to consider income tax implications on the income received
4. If you fall out with your children you could be evicted with no automatic right of recourse
5. If you outlive your children, the property will still be passed on to their beneficiaries
6. Parents see passing on property as a potential escape from future care home fees. However, under certain circumstances, local authorities can overturn the transfer of ownership if this is deemed a reason for transfer
7. Capital Gains Tax if the property is a second or holiday home can be expensive and needs to be factored in
Gifting property has many hidden costs and before making the decision to transfer property it is very wise to take expert legal and financial advice
The Bank of Mum & Dad continues to be one of the biggest property lenders in the UK and with the right professional advice it can help share the property wealth it has built for future generations.
If you need advice on any aspect of property transfer or transaction, contact the Slater Heelis property team on 0161 672 1445 or email email@example.com