Q. Can I buy a house in the name of my child when they turn 18 to pass on part of my estate and avoid inheritance tax, assuming that I live another seven years until they are 25?Harshal, Essex

Amid high property prices and mortgage rates, it is not surprising that parents are considering helping their adult children get on the property ladder. However, buying property for your children can be complicated and you should consider the tax implications before making such a big investment.

If you already own a home then the property purchase could be liable to a stamp duty surcharge if you buy it yourself before giving it to your children. In England and Northern Ireland the surcharge is 3 per cent. There may also be inheritance tax (IHT), capital gains tax (CGT) and other stamp duty consequences when transferring the property into your child’s name.

• How to protect your child’s inheritance if you marry again

A simpler option may be to give your child the cash to buy their own home. If they are a first-time buyer, they may be able to make use of the stamp duty relief available (first-time buyers pay 0 per cent on the first £425,000 and 5 per cent on anything above that up to £625,000. Properties worth more than £625,000 are exempt). There would be no immediate tax implications of the cash gift, but IHT will still need to be considered.

Gifts made in your lifetime are known as potentially exempt transfers for IHT purposes. This means that if you survive seven years from the date of the gift, the value falls out of your estate and is not subject to IHT. If you survive at least three years from the date of the gift, the amount of IHT due may reduce until it becomes entirely tax-free at the end of the seven years.

There is an IHT exemption of £3,000 each tax year for gifts. If unused, this exemption can be carried forward for one tax year before it is lost. If two parents gave money to their children, and neither had made gifts in the previous tax year, this would allow £12,000 (£3,000 per parent, for two tax years) to be given without IHT implications. This could go towards a child buying a property.

• A guide to inheritance tax

Strict rules apply when a person makes a gift but still benefits from it, for example by continuing to live in a house after it has been given to a child. These rules are known as gifts with reservation of benefit. This means that if you continued to live in a property after giving it away it could remain within your estate for IHT purposes. You can avoid this by paying market rent to your child for staying in the property.

Kate Aitchison has been advising clients on capital gains tax, inheritance tax, succession planning, investment structuring and tax residency for almost 20 years