How to financially help your children leave home

Parents are finding their children either still at home in their late 20s and 30s or returning home after university. It’s a phenomenon that’s given rise to the term ‘Boomerang Generation’.

We love our children, but how do we help them get started and stand on their own two feet? What if you could do this and gain some attractive inheritance tax (IHT) breaks along the way?

Help your children get a foot on the property ladder

As property prices rise again, it’s getting harder and harder for our children to buy their first home or step up onto the next rung of the ladder if they’re already on it.

Several lenders now offer mortgages where parents can join forces with their children to secure a more affordable mortgage. With attractive rates and using the parental home as security, it can bring forward the date your children flee the nest quite considerably.

Gift money to your children

If using your property as security doesn’t sit too comfortably with you, you could use your £3,000 annual IHT gift exemption allowance and make small regular payments to your children’s savings account.

You can gift larger sums of money, but you need to survive for 7 years after giving the gift in order for it to be inheritance tax-free.

Charge them rent

If they’re working and they tell you they’re trying to save but strangely making little progress, you could force the saving by charging them rent. You put the money into a savings account and return it to them in due course.

Monthly contributions

If you’ve been regularly paying school fees or other child-related expenses from your normal income, you could consider helping them with a monthly contribution.

You do need to be mindful of the tax rules, especially if the child is below the age of 18 (Help to Buy ISA is available from age 16), as there are strict rules regarding interest a child can receive on money gifted by a parent – which by the way doesn’t apply to gifts from grandparents…now there’s another thought!

However, if your children are aged 18 or over, gifting in this way should be fine and if there has been a pattern of regular payments (e.g. school fees) then a continuation of a small, regular, affordable gift from your income should be IHT exempt.

Secure your children’s longer-term wealth with a pension

By the time your children leave university, they will be in debt. The housing market will also zap a high percentage of their income, leaving less for them to direct towards saving for later life, let alone retirement.

By kick-starting a pension for them, your ‘gifted’ money will not only grow over a long period of time, but it will also benefit from the appropriate tax relief added to it each year by the Government. Better still, your children can’t access it until they’re 55. This age is most likely to rise to 57, so you don’t need to worry about it being frittered away before then!

Whilst we love having our children at home, sometimes it’s nice to have the time and space away from them! A little help to get them on their way is always welcome on both sides.

For more advice, we would recommend seeking the advice of a financial advisor, certainly when it comes to any form of investment.