How to help your child build enough money to buy a £500,000 first home – from tricks to tax tips and top investments

A baby born today would need more than £500,000 to buy his first home by the age of 31 – the average age of first-time buyers, according to research by estate agent Lomond. This is higher than the current average house price of £237,655 that first-time buyers pay today.

Those buying in London would need £1m, it emerged. The figures are based on the historical increase in house prices over the past 31 years, and assume that prices will experience the same level of growth over the next 31 years.

Should these figures be correct, a baby born today would need around £75,000 for a 15 per cent deposit – and to earn as much as £95,000 a year to get a mortgage that would normally cost four and a half half times their income.

Even taking inflation into account, this is a substantial jump on the current average full-time wage of £34,963 per year.

There is of course no guarantee that house prices will follow the same trend as in previous years. Nevertheless, it is likely that first-time buyers will need deep pockets to move onto the property ladder in the future. And just like now, many may struggle to do so without the help of family members.

Finding a large lump sum to help with the down payment on a first home is a big ask for most families. But starting to save early is a little more manageable. If you prune away £85 a month for a child or grandchild born today, you could make £75,000 by the time they reach the age of 31, assuming you earn a 5 per cent annual return and the reinvests interest.

Laura Suter, director of personal finance at AJ Bell, says: ‘In the day-to-day struggle of parenting it’s easy to put sorting out your child’s savings to the bottom of your list, but putting a little money aside every month can they get a clear head. add up when they’re older.’ So, where should you save the money?

Your first option is a simple children’s savings account. You can make a monthly deposit or add fixed amounts. When they turn 18, they have control over the account. The best account on the market is from Coventry Building Society and pays 5.25 percent interest.

However, there are several problems with this option. First, if you are the child’s parent and the account earns more than $100 in interest per year, it counts as your money for tax purposes.

It’s part of your personal savings allowance and if that’s more than £1,000 a year for basic rate taxpayers (£500 for higher rate people), it’s taxed as part of your income.

The way around this is to put the money into a Junior Isa instead. Here, all investment returns and savings interest are tax-free.

The best Junior Isa also comes from Coventry Building Society and pays 4.95 per cent.

Junior Isas must be managed by a parent or guardian until the child turns 18. Then the money is theirs and they can choose how to manage or spend it. The next problem is growth. When you save for a baby or small child in the hope that the money will help them buy their first home, you are looking a long way into the future.

The best account on the market is from Coventry Building Society and pays 5.25 percent interest

The profits will be higher if you invest the money instead of holding cash, due to the erosion of inflation.

‘A shares Junior Isa is usually the best choice,’ says Myron Jobson, senior personal finance analyst at Interactive Investor. ‘You have a greater chance of achieving returns that are higher than inflation than the interest you get on savings.

‘Most Junior Isas will be inherently long-term as they won’t be accessible until the child is 18, so there’s plenty of time to smooth out the inevitable short-term bumps in the stock markets.’ If you’re worried about your child getting their hands on the money in their teenage years, such as with a Junior Isa, then another option is to save in an account in your own name. This way you can choose when you give them the money.

‘For those not using the full Isa allowance of £20,000 per year for adults, putting money aside within that can be a good way to save for your child,’ says Jobson. If you choose to keep the savings in your own name, keep in mind that this may cause a problem with inheritance tax in the future.

Any financial gifts above the annual gift allowance of £3,000 will still be considered part of your estate for inheritance tax purposes if you were to die within seven years of the gift.

Everyone has a benefit that allows them to pass on donations of up to € 325,000 free of inheritance tax – or € 650,000 for couples.

You also have an additional allowance of up to £175,000 per person, allowing you to pass on a family home worth up to £1 million tax-free. Anything above these fees will likely attract a 40 percent inheritance tax.

There are a few ways to donate cash during your lifetime to reduce the bill.

One way to reduce the chance of an estate tax bill later is to place the savings in a trust for your child or grandchild.

You can then determine when they can access the money. 30 can be a good choice if you want them to use the money for their first home.

The money belongs to the child once the trust is established, so the seven-year countdown can start now instead of years in the future, giving you a better chance of surviving long enough to avoid any threat of estate taxes on the amount in the eliminate future. the trust.

Furthermore, you would have donated the money when it was still a relatively small amount, before its growth would have made it more likely to have any impact on your estate for estate tax purposes.