Buying an apartment for when child turns 18

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Red Baron

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Hi Askaboutmoney,

(Not urgent will see where property prices go[1], act on in a years time.)

I am thinking of buying a 2 bed apartment for my son(currently 13 years old)[2]

Can I easily put it into his name when he turns 18[3]?

I assume when he turns 18[3] he can make use of tax advantages of Principal Private Residence[5], and rent a room scheme. (As a buy to let, until he is 18, advantages seem pretty small, might use it to cut down his commute to school(and not rent it out) until he is 18.)

Any big holes in this plan - or is it "talk to bank and/or solicitor' time?

Little financial planning for son[4] so far, beyond bank account for small gift allowance (3000 a year).

General financial health[6] of my wife and I: good.

Thank you for your time,
Turloch O'Tierney

[1] Property long or short: see where prices go. I am neutral on property, have some minor property investments plus own my house, however want to buy apartment for son(currently 1hr each way commute to school).

[2]Apartment location: Near school and university. Max out his CAT plus a small (50%) mortgage/loan (which I can guarantee) paid back by rent a room.

[3]When can he own: assume at 18 he can own a property, sign contracts etc without a bare trust. If he can get the advantages of PPR earlier that would be great.

[4]Financial planning for son: (Opened a bank account for him to receive 3000 a year from me (father) plus grandfather, no other inheritance/financial planning for him so far, intend to max out his from parents CAT Eur 3xx,000 at some stage, my wife and I have enough liquid investments for his max tax free CAT)

[5]PPR: Married couple can only have 1 PPR and we probably will not move (or rather moving and selling existing north side of Dublin 3 bed semi detached house is a different discussion).

[6]General financial health: Good. Two incomes, 50 year old, paid off mortgage, max out pension contributions, 1.5 houses (part share in holiday house)(state of houses slightly below average/need work done), liquid resources: shares, unit trust and cash. Holes in this: cheap average location house. Too much not invested/in cash. Shares in only one company (should diversify). Always wondering about next/additional investment due to shares in one company and extra cash, have to get it past my wife, who is more cautious on investments (hence the cash/ slow rate of action or change).
 
Hi Turloch

Forget about the financial issues for the moment. Is it a good idea to give an 18 year old a present of a house? I would have thought not. Or at least, that such a golden spoon might run the risk of being a big disincentive to work and study.

And I fully agree with parents helping their children to buy a house. But make him work and earn some part of it.

When your son goes to college, by all means buy a property in your own name and let him live in it. But wait until you know which college he is going to.

Brendan
 
I would also be inclined to run a mile away from the idea of gifting an 18 year old an apartment.

In the short term I would suggest yourself and the sons other parent to contribute the €3,000 each per annum into an account in your sons name that he can't access until he is older. There are no tax implications in doing this and will not reduce his CAT threshold.
 
There are so many reasons why this is a risky idea but lets look at this statement.

"[2]Apartment location: Near school and university. Max out his CAT plus a small (50%) mortgage/loan (which I can guarantee) paid back by rent a room. "

Can you explain this ?
Am I correct that you intend buying the apartment now to give to him when he's 18 ( and still at school).
Its near his school and the university you have already decided he's going to attend. Do you intend buying this for cash, or getting a mortgage

Who is getting a "small 50% mortgage" and when ? You seem to suggest that an 18 year old in full time education is going to be able to get a mortgage for 50% of the cost of an apartment near a university in Dublin ( Note that some might not describe this as a small mortgage).

If you buy a BTL apartment and give it to him when hes 18, you will be liable for CGT on any increase in value in the interim.
if you have a mortgage on it, you wont be able to give it to him without redeeming the mortgage.

This are just a few of the holes in your plan ( unless I have misunderstood).
 
Thanks for your input. No one is arguing against the large tax advantages. (Assuming apartment price rises at least in line with inflation, after a dip due to current crisis)
I will emphasise 3 points:
-The idea is to use a young adult's citizens tax breaks (namely CAT tax free threshold, no CGT on PPR, and tax free rent a room).
-We could use the apartment now to avoid commute to school.
-I should have mentioned this first: My wife is very interested in property as an investment, as opposed to shares for example. I think property is too much trouble/risk/too illiquid unless the family has a current use for the property.

Main holes:
-Gifting 18 year old house disincentive
Might decrease the magic of his first pay packet. He would not have to take first job offered. No great loss.
Also you need 3x max CAT to retire so it is not that big a golden spoon, especial if there is no more coming.
Only child always going to get max CAT threshold unless unforeseen circumstances.
-Location
Good for school (next 6 years) university (UCD or Trinity) 3 or 4 years. Job (only thing 'wrong' with Dublin is house prices, and commute).
(DCU for example is convenient from my (his parents house).)
If circumstances change (different Uni/school, years abroad, job in different location) the apartment could be sold or buy to let, in fact BTL might work for student as low income tax. (Whereas BTL for a 40% income tax payer does not look good).
-Mortgage or loan only required if MAX CAT not enough. Agreed: difficult for 18year old to get income based mortgage approval, so would need to be a cash transaction (when he is 18, up to 6 years after initial purchase) I realise revenue taxes interest assumed paid on soft loans (for example loan from parent), it would need to be an official documented loan as revenue could argue CAT tax is due as transfer appears to be over MAX CAT threshold.

I am pretty risk/action averse, however it looks like a good deal on any modest fall in apartment prices.

Thank you for your time,
Turloch
 
Are you suggesting that you will buy an apartment now close to your son's school? He will live there now to save on the commute?

I am not a parent, but this does not sound like a good idea to me.

Your overall tax plan seems to be the following:
  • When he is 18 give my son €350k
  • There will be no CAT on it
  • As a student, any benefit he can derive from it will be tax-free whereas if I keep it, I will pay tax on it
There is a good argument there, but no need to do it until your son has picked which college he is going to. You might well pick a property now that is in some unsuitable location.

If your son goes to DCU, I would say that the advantages of living at home would far outweigh the tax advantages.

While it makes sense to plan ahead for tax purposes, don't let the tax tail wag the dog.

Work out what is best for your son and then plan the tax around that.

Brendan
 
Not quite right Brendan , his plan is to give his son an apartment worth €350k on the condition that he signs an agreement to pay his parents €175k.

Have you analysed the running costs the your son will be liable for?

- utility bills, LPT, maintenance, repair , replacement of furniture and appliances , management fee.

He’s expected to pay these and pay you back for the loan out of the income from rent a room .

You know that you will end up heavily subsidising that while he is in college .

It sounds like a very artificial situation so you can say he owns it .

The CGT you may have pay when you give it to him will negate some of the tax advantages
 
Previous message:
>-Mortgage or loan only required if MAX CAT not enough. Agreed: difficult for 18year old to get income based mortgage approval, so would need to be a cash transaction (when he is 18, up to 6 years after initial purchase)

It sounds like I would be saddling him with a Eur 175000 debt +appartment repairs/maintenance, rather than gifting him Eur 3xx,000/positive equity of EUR3xx,000. I was focusing on the tax benefit of (estimate: half of growth on house plus rent a room approx 25000 a year (11000 + 14000). (Edit over estimate by a factor of 2. CGT is 33%, House value increase likely to be 4% above inflation, rent a room is tax free/do not have to keep a bad tenant but tax benefit is less than 100%)

50% was a fairly arbitrary figure - on reflection: mortgage not relevant - what I was trying to say was enough of a gift/deposit so no risk of negative equity - it would have to be a cash transaction - MAX CAT would be (almost) enough for a 2 bed Apartment (but not enough for a 3 bed apartment or a house, for example).
 
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Take advantage of this enforced confinement to teach them about personal finance so they'll have the wherewithal to buy their own places to live when the time comes.

I didn't get any assistance to buy a house despite having a wealthy parent, which was difficult at the time but was invaluable in becoming self-reliant and having problem solving ability.
 
ATC110 said:
Take advantage of this enforced confinement to teach them about personal finance so they'll have the wherewithal to buy their own places to live when the time comes.

I didn't get any assistance to buy a house despite having a wealthy parent, which was difficult at the time but was invaluable in becoming self-reliant and having problem solving ability.
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I think it’s possible to do both. i.e. for parents to help out but for the “child” to maintain his or her drive and ambition.

My own sense of what’s best in terms of an approach is to “top up” what the child himself/herself can afford. That way they have a normal life with normal issues such as budgeting etc.

e.g. the child can “afford” to buy a place for €400k. By “topping it up” by €175k, they can afford a place for €575k.
 
I disagree - life does not consist of windfall top-ups for what is not affordable from your own resources
 
ATC110 said:
I disagree - life does not consist of windfall top-ups for what is not affordable from your own resources
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That ignores the reality of being from a comfortable family. Say a child wants to be a primary school teacher. That’s a really worthwhile career. But it doesn’t pay particularly well. Or to put it more bluntly, 3.5 times nothing is nothing. If a parent has a few bob, I don’t think he or she should buy a house for them because that can impact on ambition etc. A better approach is to ‘top it up’ as per my earlier post. And they’re going to inherit it anyway, which is a windfall in itself.
 
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A client once said to me "what difference does it make if he gets a few X more as he is going to be worth many multiples of that on my death. I'd much rather that he is in a good position to receive the assets and to instill good behaviour and learnings now"

In saying that you could provide him with a loan to purchase the apartment. You could then forgive the loan once the child has met certain conditions such as attaining a degree etc. You could also look at taking a fixed interest in the property with the child taking the remainder interest. This way you retain some control over the property as well.
 
Gordon Gekko said:
That ignores the reality of being from a comfortable family.
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If you mean the parent(s) are comfortable, good for them. Let them enjoy it rather than giving their young adult child a windfall.

Gordon Gekko said:
Say a child wants to be a primary school teacher. That’s a really worthwhile career. But it doesn’t pay particularly well. Or to put it more bluntly, 3.5 times Sweet FA is Sweet FA
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Teaching is a well-paid, protected, secure and superannuated job. It was almost impossible to get a mortgage unless you were a public sector worker in post-boom Ireland. If the houses are too expensive in the area you'd ideally like to live then you buy a house somewhere else.

Gordon Gekko said:
And they’re going to inherit it anyway, which is a windfall in itself.
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Inheriting x amount in middle-age compared to at age 18 is incomparable. At that stage they will likely to have made their own way in life and be able to nurture those same life skills in the next generation; this is invaluable compared to getting a ball of cash.
 
ATC110 said:
Teaching is a well-paid, protected, secure and superannuated job. It was almost impossible to get a mortgage unless you were a public sector worker in post-boom Ireland. If the houses are too expensive in the area you'd ideally like to live then you buy a house somewhere else
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- Teaching is not a well-paid job

- It is not accurate to say that “it was almost impossible to get a mortgage unless you were a public sector worker in post-boom Ireland”

- What about the parent in all of this? Say my daughter is on €45k a year; on that basis she can afford very little, if anything, in Dublin. What if my wife and I have surplus cash...are we supposed to leave her unable to buy a home? I’m sorry, but what you’re advocating is some kind of weird Catholic Ireland self-flaggelation. I am totally against handing kids everything on a plate, which is why I believe in topping up what is normal based on the child’s income. But the reality is that many people who work in very worthwhile sectors cannot compete for properties in many parts of the country. I believe it’s more important for my children to be happy than earning huge money but if that creates a shortfall, what’s the problem with filling it?
 
Fergal19 said:
"what difference does it make if he gets a few X more as he is going to be worth many multiples of that on my death. I'd much rather that he is in a good position to receive the assets and to instill good behaviour and learnings now
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Not sure I understand this sentence. Who is "he " .. a son about to receive cash from a parent? If so who is the son instilling good behavior in ?
 
I have come across this situation many times.

It is not up to you to decide where you son lives, so don't buy a property and tell him it's his. He may not want to live there. He may not want to live in Dublin at all. Let him make his own decision on where lives. By buying a property in his name, he will also no longer be a first time buyer. If in years to come, he meets a girl and they want to buy their first place together, they will have to have a 20% deposit instead of a 10% deposit.

You also have to let him find his own level in life. Having his own place at 18 (still a child) does not allow him to become independent in his own way. Let him work hard and grow as a man. Then as Gordon said, help him out financially. But don't tell him you have money or you will help him out, do it closer to the time.

I do agree with parents helping their kids out financially if they can afford it. These "kids" will likely be their 50's/ 60's by the time they get their inheritance. Their parents would have seen no enjoyment from helping them out financially. By helping him out in 15 years time, you will get the enjoyment of knowing you helped them out on the property market. But buying him a house when he is 18 may cause a lot of damage to him that will last a lifetime.


Steven
www.bluewaterfp.ie
 
Despite what some people will tell you, hard work on its own is no guarantee of success; there’s generally an element of luck as well.

Globalisation has devastated the purchasing power of what were traditionally really good jobs.

I would be against buying a property for an 18 year old. But if a child of mine is at the point of settling down, we will help out. Not to the point of funding the whole thing; but we would hopefully be able to top it up.

I’m a great believer in helping kids out when they actually need the money in their late 20s/30s/early 40s. There’s not much point in 60 year olds inheriting a load of cash then.
 
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