Will I get taxed if I help my child buy their first home?

It’s no secret that over the past few years, parents have been increasingly stepping in to help their children buy their first homes. As house prices soar, far outpacing wage growth, around half of first-time buyers in the UK are only able to do so because of help from bank of mum and dad. Typically, those who receive financial support from their parents are able to buy earlier than their counterparts who self-fund their own deposits, as well as being able to put down a bigger deposit, therefore allowing them to secure larger loans and lower rates.

But if you’re in the position of being able to help your child buy their first home, just be aware of the potential tax implications that may come your way depending on how you have chosen to financially contribute to your child buying their house. Our experts go over the different ways you can help buy a property for your child and explain what taxes you may face as a result.

Do I have to pay tax if I gift my child money for a house deposit?

Simply giving your child money to buy a home is one of the most common ways parents help their children get their first steps onto the property ladder. Whilst it’s almost certainly an agreeable arrangement for them, it still generally stands as one of the more favoured approaches due to the simplicity and potential to attract little to no tax liability for yourself as the parent. Furthermore, taking this route to help your child buy a property prevents putting off lenders. This is because if you were to offer your child a loan, as opposed to an outright gift, the repayments they’re expected to make to you will need to be factored in by the lenders as part of your child’s affordability test and could therefore restrict how much they could borrow.

How to use the annual gift allowance to help your child buy a house

There are different ways you’re able to gift money to your child for a house without attracting any tax. The first option is to utilise your annual gift allowance or annual exemption from inheritance tax. This is £3,000 a year. You should note that the £3,000 allowance is the entire annual allowance and it is not an allowance per person you choose to gift money or assets to. So, if you have two or more children and wanted to give them each a tax-free gift, you will have to split the £3,000 between them. If you do not use your annual exemption in one tax year, you’re able to combine and utilise it with the following year’s allowance but can only do so for a maximum of one year – you cannot keep accruing the annual allowance and give one large lump sum in one go (the maximum you can gift in one year is £6,000 if you did not use your allowance in the previous tax year). Giving regular gifts using this exemption is a simple way to help your child save up enough for a housing deposit tax-free.

How to use your regular income to help your child buy a house

The second option is to further gift money but from your regular income if you can do so. Where you receive sufficient income from a salary, dividends, or pension to sustain your normal lifestyle and have surplus which you can give your child on a regular basis, HMRC may see this as exempt from the annual allowance as well as any potential inheritance tax. It’s crucial that the payments are made regularly as opposed to a one off to establish that the gifts are a “normal expenditure out of income”. Our advice would be to keep bank statements that can show you are maintaining your regular amounts of spending whilst also frequently making these gifts to your child. If you decide to give your child money to buy a house in this way, then there is no limit to how much you can give so long as you are able to provide evidence that it comes from your income and you continue to be able to afford your normal living standards.

How you may be subject to inheritance tax when you help your child buy a house

The final and third option is to gift your child money one lump sum so that they can buy their own house. This of course would mean that it would neither qualify under your annual exemption or as gifts from your regular income. As a result, gifts given in this manner have the potential to be liable for inheritance tax. In the UK, this is charged at 40% on any assets which fall over the nil rate band threshold of £325,000. If your gift falls within these thresholds, then no tax is due to be paid. Furthermore, if your gift is given at least 7 years prior to your death, then it falls outside of the scope of inheritance tax, and again, no tax is due to be paid. All gifts fall back into your estate where they are given less than 7 years before death so there is the potential of incurring an inheritance tax bill. However, taper relief is applicable to inheritance tax, which means that the longer you had given the gift before death, the less tax is due from your estate. The taper relief rates are as follows:

• Gifts given 1 – 2 years before death are taxed at 40%
• Gifts given 3 – 4 years before death are taxed at 32%
• Gifts given 5 – 6 years before death are taxed at 16%
• Gifts given 6 – 7 years before death are taxed at 8%
• Gifts given 7 years or more before death are not subject to inheritance tax

Will I get taxed if I loan my child money for their house deposit?

Handing over a substantial sum of money to your child is not always the preferable option, and there are many legitimate reasons why you may choose to offer a loan instead. Having a formal loan agreement in place can deter some lenders (as we’ve discussed above), but it by no means makes it impossible for your child to secure a mortgage. If the loan is offered under an ‘informal’ basis where it is not disclosed to the lenders, it could be interpreted by HMRC as a gift instead and therefore fall under the rules we’ve described above.

Granting your child a loan can also have an income tax implication for yourself if you are charging interest on the loan. Any interest payments received are classed as income and you will therefore need to declare this on your self-assessment tax return where you’ll be charged at your personal income tax rate. Income tax is charged dependent on your overall income band:

• Income of up to £12,570 is charged at 0% as this falls within your personal allowance
• Income of between £12,571 – £50,270 is charged at a 20% tax rate
• Income of between £50,271 – £125,140 is charged at a 40% tax rate
• Income of over £125,140 is charged at a 45% tax rate and your personal allowance is also lost.

It’s worth noting that interest received can be tax-free so long as it falls within your Personal Savings Allowance or Starting Rate for Savings allowance. Anything that exceeds this will be taxed at the above income tax rates. What’s more, should you for any reason agree to write off the loan, this immediately becomes a gift and so therefore subject to inheritance tax rules.

What are the tax implications if I buy a house together with my child?

Getting a joint mortgage with your child is another option when it comes to helping them get onto the property ladder.  It can be an effective strategy where they are struggling to meet the affordability criteria by themselves. It may be that they’ve managed to save for a deposit, but their regular income is not seen as sufficient or stable enough (which can often be the case if they are self-employed) to satisfy the lender’s affordability tests. By agreeing to be named as a joint person on the mortgage agreement, lenders take into consideration your combined overall income, making it a less risky decision for them.

Nevertheless, doing so is a significant financial commitment because it exposes you to legal and financial risk if your child fails to keep up with the mortgage repayments. By being jointly named on the mortgage agreement, you are effectively agreeing to be equally legally responsible and therefore lenders can pursue you for any arrears which can affect your own personal credit score.

The different rates of stamp duty you may have to pay when your child buys their first home

From a tax point of view, there are also several factors that may make this route less favourable than simply giving your child money to help them buy. Firstly, assuming you are already a homeowner, and your child is a first-time buyer, by buying together, it would mean that they lose their eligibility to receive stamp duty land tax (SDLT) relief. First time buyers can receive more favourable rates and from 1 April 2025 these are:

• 0% SDLT on the first £300,000 of the property price
• 5% SDLT on the portion of the property price between £300,001 and £500,000
• No SDLT relief for properties worth over £500,000 and therefore the standard rates will apply to the entire purchase price

The standard rates of SDLT are:

• 0% SDLT on the first £125,000 of the property price
• 2% SDLT on the portion that is between £125,001 and £250,000 of the property price
• 5% SDLT on the portion that is between £250,001 and £925,000 of the property price
• 10% SDLT on the portion that is between £925,001 and £1.5 million of the property price
• 12% SDLT on any further portion above £1.5 million of the property price

Furthermore, if you go down this route, not only does your child lose their first-time SDLT relief, but they’ll also have to pay stamp duty surcharge because you already own your own home and so buying with them would mean buying a second home for you. The stamp duty surcharge applies whenever someone is buying an additional property. If you are buying a property together with someone else, then the surcharge still applies where at least one other person already owns a property. The surcharge is 5% in addition to the standard rates.

Example calculations of how the different SDLT rates work:

Your child buys their first house for £450,000. They are buying by themselves and therefore eligible to receive first-time buyers’ relief. They pay 0% SDLT on the first £300,000 of the house. The remaining £150,000 is subject to 5% tax which is £7,500.

Your child has sold their main residence and is buying their next house by themselves, or they are buying together with you, but you are not a homeowner. They are no longer a first-time buyer and therefore no tax relief applies. The property is again worth £450,000 so they would pay 0% SDLT on the first £125,000, 2% SDLT on the portion between £125,001 and £250,000, and 5% SDLT on the portion between £250,001 and £450,000. The total tax liability comes to £12,500.

Your child is buying their first house together with you, and you are already a homeowner. Together, you are unable to claim any first-time buyers’ relief. Additionally, because it will be your second property, you are both subject to the SDLT surcharge. 5% SDLT is due on the first £125,000, 7% SDLT on the portion between £125,001 and £250,000, and 10% SDLT on the portion between £250,001 and £450,000. The amount of tax due comes to £35,000.

As you can see, SDLT is a substantial immediate tax cost when it comes to buying a house, and so therefore should be budgeted for accordingly. 

Will I have to pay capital gains tax when my child sells their house?

Another tax consideration to be mindful of is capital gains tax (CGT) when buying together with your child. Assuming your child is buying the property to live in it themselves as their primary residence and you are remaining in your own home, then a tax liability could arise for you should your child later decide to sell their home.

CGT is only incurred when an asset is disposed of and increases in value from when you first acquired it. For most homeowners, CGT does not need to be paid on the sale of their home if they have lived in it as their primary residence for the entire time of ownership because of Private Residence Relief (PRR). This will be the case for your child. However, because you also have ownership of the property but do not live in it as your main residence, your share will be subject to CGT.

The CGT rates when selling residential property are based on your income bracket. You pay:

• If you are a basic rate taxpayer, then you pay 18% CGT on your share of the property up until the limit of the basic rate threshold (£37,700 as it excludes your personal income allowance)
• You’ll have to pay 24% CGT on your share of the property on any value that exceeds the basic rate threshold
• If you are a higher rate or additional rate taxpayer then you pay 24% on the entire share of your property

Using the same example as above, if the property was purchased for £450,000 and then sold for £550,000 further down the line, there is a £100,000 gain made. £50,000 is your share which is subject to CGT. If you have not used your CGT allowance in the tax year where you sell this property then you can deduct £3,000 from your gain, leaving £47,000 left liable to tax. If you are a basic rate taxpayer earning £45,000 a year then £5,270 of your gain will be taxed at 18% (the difference between the basic rate threshold limit of £50,270 and you’re your income of £45,000) and the remaining amount of your gain (£41,730) will be taxed at 24%. Your total CGT bill will be £10,963.80.

Finally, the last thing to be aware of is that if you retain ownership in the home you have bought together with your child, then your share of the property makes up part of your estate when you die. This means that there can still be inheritance tax due should the value of your share exceed the inheritance tax thresholds. 

Should you choose to gift your half of the ownership to your child and the value of the property increases, then this gain is subject to CGT, and you could still face a tax bill. Moreover, even where you pay the CGT, if you die within 7 years of gifting your half to your child, then this falls back into your estate for inheritance tax purposes which means you could be left with a double tax bill. A solution to prevent this is if you sell your half to your child at market value instead. You will still face a CGT liability if there is a gain, but it ensures that the property does not fall back into your estate for inheritance tax. 

Is there any way to avoid paying capital gains tax and stamp duty surcharge when buying property for children?

Yes, there are certain mortgage products on the market which are specifically designed to remove this issue. These are often referred to as ‘joint borrower, sole proprietor mortgages’. They allow you as the parent to be jointly named on the mortgage deed (so you’re able to help your child access larger loans because your income is factored into the lending and you also become jointly legally responsible for ensuring the mortgage payments are made each month), however you have no ownership or legal interest in the property at all. Often, such mortgages will stipulate that you are not to live in the property as one of the conditions.

This will allow your child to remain eligible for first-time buyers’ tax relief, there is no stamp duty surcharge to be paid, and there is no CGT to paid by either you or your child so long as they continuously reside in the property as their main residence up until they sell it. There are no inheritance tax implications unless you start making any of the mortgage payments without a formal agreement that your child is to repay you. Even without this formal agreement, any payments you make towards the mortgage may still be exempt from inheritance tax where you can demonstrate clear evidence that these payments are being made regularly from your income without it impacting on your lifestyle.

Get more tax planning advice about buying a property

When it comes to buying your child a house, there are multiple tax implications that can arise from all directions that you will need to navigate. Getting the full picture of potential tax risks can help you make an informed decision on the best way to buy a property for your own individual circumstances. To get clear insight into property taxes, make an appointment with one of our specialists via the contact form.