The generation game: Baby boomers contribute an average £30,000 to children and grandchildren's deposits

Grandparents are joining parents in bankrolling young buyers who want to get a foot on the housing ladder in London, new research shows.
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Anna White21 November 2018

More than 85 per cent of parents in the capital aged over 55 have helped, or are planning to help, their kids to buy their first place, compared to a national average of 76 per cent.

A third of grandparents are also chipping in, a poll by financial advice group Key Retirement shows.

Frenetic house price growth in London over the last 30 years has enabled baby boomers to collectively amass £481 billion of housing wealth, according to Savills.

This splits down and those aged 50 to 65 own £229 billion of equity whereas homeowners aged over 65 hold £252 billion.

On the flipside, it means that the price of the average first-time buyer home is now £365,750 and values in the capital are now more than 13 times the average resident income.

As a result London parents plan to give on average £19,400 to help their offspring afford a deposit. Grandparents intend to donate £11,200.

House prices in every London borough, November 2018

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“There is clearly a real desire among this group to support younger generations and a recognition of some of the financial challenges they are facing,” says Will Hale, chief executive of Key Retirement.

“The over-55s have done well out of property wealth growth and many may be benefiting from generous company pension schemes.”

This transference of wealth has also become a popular way of minimising inheritance tax at a later stage.

“Inheritance is set to play an increasing role in people’s wealth and the challenge for families is how to efficiently pass this money through the generations,” says Austin Broad, head of advice at AFH Wealth Management.

CONSIDERATIONS

However, there are a number of things to consider when thinking about how family wealth can help without accidentally falling into a tax trap, he warns.

If a parent or grandparent passes on more than £3,000 in a year, this money could be classed as a “potentially exempt transfer”: if the donor dies within seven years of making the gift, the money could be liable for inheritance tax where the whole estate is worth more than £325,000.

But funds below £3,000 a year can be passed down without incurring tax and if the child marries, that sum can go up to £5,000.

If the the parent is still working and the money comes out of an income, it is also exempt.

Ruth Jackson, of the website LoveMoney.com, says: “Giving your child smaller amounts will help them avoid inheritance tax.”

Aside from tax, the other major concern according to Key Retirement’s Will Hale is the older generation overstretching themselves and underestimating the costs involved in later stages of life.