Tax implications of buying a university property for your child

With exam results not long released and the start of the university term on the horizon, the rush is on to find student accommodation before the start of a new term, which can often be in short supply. The average annual cost of rent in the UK for student accommodation is £7,374[1]. So, many parents may look to acquire a property for their children whilst studying at university. This can act either as an investment, or to help them get onto the property ladder by providing them with security of accommodation.

But there are many issues to consider in terms of how the purchase should be structured, which could have a number of knock-on tax implications.

  • Should you, as the parents, buy and own the property?
  • Should the property be jointly owned by the parents and the child?
  • Should you gift or loan the funds, or act as a guarantor to your child to enable them buy and own the property themselves outright?

In terms of any acquisition of the property, if you already own the family home and/or own another property, then you would be liable to pay an additional tax on the initial acquisition of the property. The:

  • 6% Additional Dwelling Supplement (ADS) will apply to the purchase price on acquisitions in Scotland;
  • The 3% Stamp Duty surcharge will apply to property acquisitions in England and Northern Ireland; and
  • The higher rates of land transaction act apply to property acquisitions in Wales.

As an example, if you were to purchase a flat in Edinburgh for your child worth £250,000, Land and Buildings Transaction Tax (LBTT) of £17,100 would be payable on the purchase (including an ADS charge of £15,000).

Given the potential additional costs associated with acquiring a property in your own name you may want to consider if it is more appropriate for your child to purchase the property and own it outright in their name.

If the property being acquired has additional rooms which can be rented out, then this could come in handy in terms of helping to pay for any mortgage interest costs. In addition, rent a room relief of £7,500 is available where a property is occupied by the owner, and the spare bedroom is rented out. Therefore, your child could receive £7,500 of rental income from renting the spare room(s) in the property completely free of income tax. This could help alleviate the burden of mortgage interest costs which are currently at a 20-year high[2]. If the income received is in excess of the £7,500 rent a room relief, then your child may need to register with HMRC and file a Self-Assessment Tax Return to report the rental income and expenses received.

Although we have briefly touched on some of tax implications of acquiring student accommodation, there will be other tax (capital gains tax and inheritance tax) to consider. There will also be other financial implications for you in terms buying a second property, lending or gifting funds or acting as a guarantor to your child.  Given the myriad of options, it’s recommended that you take appropriate specialist financial advice whatever your preferred course of action.

Author – Joshua Williams, Senior Manager Personal Tax

[1] How much it costs to live at university – Which?

[2] Mortgage rates surge to 21-year high (