‘It really depends on your personal circumstances, and what you want to achieve,’ says Sarah Phillips, Head of Conveyancing, in the residential property team with QualitySolicitors Parkinson Wright. ‘Investing in a property in a university town could free your child from any accommodation worries while they are studying. However, you will find there is a lot to consider before you buy, and while you have students as tenants.’
Property is a long-term investment
Most university courses last for three or four years. So, it is important to think about what to do with the property at the end of your child’s studies.
Generally, property is best viewed as a long-term investment, and while house prices have historically outperformed inflation, this may not continue.
It is harder and more costly to buy, maintain and sell property than, say, stocks and shares. Selling or buying is likely to take several months, and the transaction costs are relatively high. Your solicitor can give you a detailed breakdown of costs, but disbursements, legal fees and stamp duty will affect viability.
Your longer-term goals
If your primary motivation is to help your child onto the property ladder, you could transfer the property, or a share in it, to your child.
Alternatively, you may see the property primarily as an investment and plan to rent it out to other people once your child has graduated.
Clarity about your longer-term strategy will allow you to target the most suitable type of property to buy. For example, whether to choose a house which will appeal to students or an apartment more likely to attract young professional renters.
Discuss your plans with your solicitor at an early stage so that they can advise on how best to structure your transaction. For example, if you plan on renting your property out, purchasing through a company could save you tax in the future. We can also check for any restrictions on a property, such as a lease provision which may limit occupation to a single family, preventing you renting to individual students.
Get your finances in order
If you need a loan to finance your purchase, start your research early as many buy-to-let loans have conditions which prevent their use for family members. An independent financial advisor will give you an overview of the market and specialist products for ‘buy-for-uni’ investors.
Funding your purchase yourself gives you more flexibility. However, you should still consider its affordability and impact on your future needs.
The ownership structure will determine how much control you retain over the property, and the amount of tax payable in the future.
The simplest arrangement is to buy the property in your name, with your child living there temporarily. However, there may be more suitable options depending on your objectives. You should discuss these with your solicitor, especially if you plan to pass on some of your wealth to your child. This could be through a gift, buying the property in their name, jointly, or transferring a share to them in the future. You may, for example, want one child to benefit from living there while they study, but for all your children to share in any sale and rental proceeds.
Buying through a company or a trust structure can provide a lot of flexibility, allowing you to tailor the arrangement to reflect your individual needs. We can introduce you to one of our colleagues who specialises in these types of arrangements.
Tax and SDLT
HMRC will treat an investment property very differently from your main residence, and you should consider the implications carefully. For example, you will be liable for capital gains tax when you sell your investment, although there may be ways to mitigate this. In contrast, if your child owns the property and treats it as their home, they will not usually have to pay capital gains tax. They should also qualify for first time buyers’ relief on stamp duty land tax, whereas you, as a buyer of an additional property, would have to pay duty at a higher rate.
There are some extra things to consider if you plan on letting other people live in the property. For example, how to regulate their occupancy. Having a formal legal agreement in place means everybody should be clear about their responsibilities. It also means you can get them to leave if things do not work out, but only if you follow the correct legal procedures before and during their occupancy. We have solicitors who can help you ensure that you comply with your responsibilities as a landlord.
A number of universities are actively working with landlords to encourage best practice, with some universities having a facility for students to ‘Rate Your Landlord’.
Houses of multiple occupation (HMOs)
If three or more people will live in the property, you should also consider the rules relating to houses of multiple occupation (HMOs). These are complex and vary between different local authorities. The searches your solicitor makes should reveal the policies for your area. All HMOs must meet minimum standards, for example, to comply with fire regulations and on the size of bedrooms, but some will also require planning permission and a licence from the local authority.
Get the right advice
Our solicitors will help you, whether you are buying a solo apartment, an HMO, or a property which could become one.
We will advise you on the detailed requirements, and ensure the property is suitable. As well as checking the seller has a good title, we can help you weigh up the many considerations when buying an investment property or creating the best family arrangement.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.