With prospective students beginning to prepare for September, they will be faced with a plethora of worries, especially financial ones, and parents will be looking at ways in which they can help their offspring.
One option for parents is to invest in a property to cover accommodation costs, but the bank has warned there are plenty of issues which must be considered before decisions are made.
Colin Stevens, head of residential mortgages at Heritable Bank, commented: “With the student population swelling every year, and students struggling to cover the cost of living and studying, it makes sense to many parents to invest in a buy-to-let property for their son or daughter. This not only saves on accommodation costs in the short-term, but could generate a sizeable family nest egg investment over the longer term.
“However, there are important issues to address, which could impact on how you choose to structure your purchase, and the tax you end up paying.”
One of the main factors is whether the property is registered in the parents’ or students’ name, with implications for capital gains tax (CGT), inheritance tax (IHT) and tax on rental income.
For example, if the property is student-owned, no CGT is payable and the deposit could be deemed a gift and not taxable under IHT.
The extra rental income could also put the investing client in a higher tax bracket.
Simon Chalk, mortgage planner at Mortgage Portfolio Services, added: “From a financial perspective, thinking about the tax implications of buying a student buy-to-let are no different to an ordinary investment, whoever the tenant is. The big considerations are to make sure you only purchase the property once the place at university is assured and that your offspring is happy with the home and the location, as there are personal as well as financial issues to be considered.”
