Helping children buy a house
In India buying a house which used to be a middle age activity is now become (becoming) a young age activity. Did you know that in the 1980s the Hdfc home loan application form did not have MISS option? It was Mr. or Mrs. They perhaps thought that an unmarried woman (young or otherwise) will ever apply for a loan! To avoid the clubbing provision a fellow CA bought a house in the name of his fiancee and wanted her to take the loan in her name…and we found out about this anomaly.
However, we have come a long way from there, have we not?
So your son/daughter want to buy a house, and you wish to help them? Wait a minute do you wish to help them or do you not?
Have you considered the following :
- If you are going to gift them a house you will have to consider the implication of gift tax.
- If you gift a house to your minor children and the house is given on rent, you have to consider Clubbing.
- If you take a loan to give to your son/daughter you will have to consider the risk of you defaulting.
- If you gift a house to your married child, in case of divorce your child in law can demand half the house
- If you sell your investments to buy a house for your child, can you afford the fall in income?
- How will death of one of the parties – you, your spouse, your child or the child’s spouse?
- How will the change of job location of your son (daughter) or their spouse change the need for the house?
- Will they respect a house got free the way they respect a tough EMI paid acquisition?
- Are you not helping them too much – is it a moral hazard ?
- If your help one child, will your other children also not ask for a ‘fair share’ of ‘help’?
- Face it, it you give a loan and it does not come back, what will you do?
- Having helped one child is it fair that your estate is divided equally among all the children?
- What happens if you waived off the loan and suddenly need money for yourself?
- How will you react to your son selling the property and buying a bigger house in a different city?
- Will you mention the loan / guarantee in your will -so that the other children know and adjust the money?
well, there are more questions to be answered but this is a good number to start with……….
param
i wish there was a law that severs financial ties with kids once they are adults. would make our country a really better place to live in…
Kamal Garg
Point No.1 is not correct. If you make a gift to any of your “lineal ascendants or descendants”, then, gift tax is not applicable in India.
Please make a correction in your blog.
I think a simple matter of applicability of gift tax and along with that ‘clubbing’ provision has been made severerally has been made complicated.
bhushan
@param yes that should really happen. But the other side is that even parents want to control their children and govern their life according to own wishes even after children have grown into adults. So keeping them tied with themselves financially is one way of exercising the control.
The independent kids usually refuse financial help specifically for this reason. Alas the number of such young people is low.
Mayur
@Bhushan you are correct. Bang on!!!