How can I help my son buy a flat?

Q The property I own with my partner is presently worth £170,000. We have nine years to run on our £50,000 mortgage.

I have a 23-year-old son in full-time employment who is looking to buy his first property. The problem is he is on limited earnings and a mortgage/loan of £30,000 is his limit. This gives him no scope to buy a place.

The desired solution for us is to borrow £50,000 and give this to my son. I could easily repay this over 10 years, not impact our present lifestyle and give my son the opportunity to buy a small flat and get his first home.

What is the best, and most cost effective, way to raise the £50,000? We have savings but do not wish to use them for this purpose. And are there tax/ownership implications?

AD

A By far the simplest way of raising the £50,000 is to borrow against the value of your home by doubling your current mortgage from £50,000 to £100,000. Assuming that you have a good deal with your current lender, this is also probably the most cost-effective option as well, since extending your current mortgage should involve fewer fees than remortgaging with another lender.

Making a gift of cash to your son shouldn't affect ownership of his property (assuming he buys it in his sole name). But it may have inheritance tax implications if you die within seven years of making the gift and your estate (broadly the value of everything you own including your share of the home you own with your partner and including the gift to your son) is worth more than the inheritance tax exemption limit. This is currently £275,000 but, the result of the general election permitting, is scheduled to increase gradually to £300,000 in the 2007-8 tax year. There should be no inheritance tax bill if you survive for seven years after making the gift.

More information on inheritance tax on lifetime gifts - including worked examples - is given in the free Inland Revenue leaflet which is available to read and/or download at the Inland Revenue.