Buying a student flat?

For many parents faced with the prospect of paying years of rent for student accommodation, buying a property for their children to live in may be an attractive option. Not only is there potential to receive rental income by renting out additional bedrooms, there is also potential to benefit from any increase in value of the property at the point of sale.

If you are considering purchasing a property it is important to take advice on the most effective way to take title to the property. You may have considered taking title to the property in your name or the names of your children.

Have you considered the tax implications of each of these options?

For example, are you aware that the Capital Gains Tax (“CGT”) exemption known as Principal Private Residence Relief (“PPR”) will not be available if you take the property in your name? This will see any gain made on the sale of the property subject to CGT at up to 28%. You will also be liable to Income Tax on any rents received.

Purchasing the property in the name of your children may deal with these tax issues but as you would not own the property, you would lose any legal control over what your children did with the property in the future. Often, it is very important to parents that they can retain control over the property.

Would you consider purchasing the property in a more tax efficient way?

Creating a Trust to hold the property can have CGT benefits, for example, it may be possible to secure PPR for the Trust on a future disposal. There are also potential Income Tax and Inheritance Tax savings for you and your family. It also provides non-financial benefits by allowing you to retain control of the property and the future application of the sale proceeds.

If you would like any further information on the use of trusts to purchase student accommodation, please do not hesitate to contact our IHT, Trusts and Estates Team:

Alison Beattie Elizabeth Shaw Lisa Watson

Tax Senior Manager Tax Manager Tax Assistant Manager

alison.beattie@aab.co.uk elizabeth.shaw@aab.co.uk lisa.watson@aab.co.uk