First-time buyers took £14k inheritance early to buy £166k two-bed house in Norwich
TAKING their inheritance early was the only way Tabby Farrar and her boyfriend Chris Graham were able to get on the property ladder.
Tabby's dad had been planning to leave his daughter £15,000 cash when he died but decided to gift it early instead.
It meant that Tabby, 27, and Graham, 37, were able to buy their two-bed Victorian terrace in Norwich for £166,000.
Until then, the couple believed buying a place was out of their league.
Saving was a struggle for Tabby who worked as a waitress on a zero hour contract, meaning her monthly salary varied drastically.
Before, the couple rented together but ended up moving a few times thanks to "neighbours from hell".
Sick of forking out for moving costs of around £200 and "throwing away" £700 a month on rent, Tabby's dad offered to gift her inheritance, even though he showed no signs of dying any time soon.
Tabby took her dad up on the offer, understanding that she wasn't likely to inherit anything when he died.
She's among the 23.5 per cent of other first-time buyers who rely on family to fund a deposit, according .
Parents don't have to pay inheritance tax on cash gifts as long as they live for more than seven years after handing it over.
Tabby had to pay her solicitors a small gifted deposit fee - a charge not all firms require - to process the cash.
Fortunately, it took less than six months for Tabby and Chris to find their ideal home, get a mortgage and move in, because there was no onward chain.
The couple had £1,200 of their own money in savings and put this together with the £14,400 they took from Tabby's inheritance fund plus a further £1,000 from Tabby's mum.
This gave them a 10 per cent deposit of £16,000 and by November 2017 they'd completed on their house.
We caught up with Tabby for My First Home to find out how they escaped the rental market.
What's your house like?
It's a Victorian terrace like most houses in Norwich and it is a nice quiet street. It is a two up, two down but is slightly converted.
Downstairs is the lounge then it goes through to a kitchen diner. Then there is a bathroom which has been added at the back.
Upstairs there is our bedroom and then the spare room which I use for writing. It is my creative space. It has about 300 pictures and paintings on the wall.
Having lived in rented houses where we couldn't put anything up I have over compensated now. It looks like a tattoo parlour.
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There is also a semi-loft conversation, so we use that as a guest bedroom.
It has a double futon in there and a skylight. I also use it for doing yoga sometimes.
When we moved in we blitzed three rooms in three weeks, repainting and replacing covering.
The credit card came in handy to pay for DIY supplies - we couldn't have been able to afford to do it without the card as we'd spent all of our savings on moving.
We could have waited but we'd rather just get it over with.
So far we've put around £500 on it so that we could buy paint and equipment.
We make sure every pay day that we transfer more than the minimum repayments though to stop it from racking up.
We've still got to buy a new front door and two new windows, which will cost us about £2,500, and replace the grubby carpets.
Inheritance tax
PARENTS don’t have to pay any tax on gifting children their inheritance early, although your kids may have to foot the bill in the future.
Everyone is allowed to give away up to £3,000 a year for free, according to the .
You can also carry over any unused allowance from previous years.
So for example, parents could gift their child £12,000 without paying inheritance tax if they hadn’t gifted any other money to anyone in the previous three years.
Any cash given above that amount will be subject to tax, but only if the person giving it to you was to die within seven years.
Until then, the cash is considered part of their estate and will be subject to normal rates of inheritance tax.
How much tax you owe will depend on how many years after the money was gifted that the person died.
For example, if their total estate, including the gift, was more than £325,000 then it would be subject to 40 per cent tax if the person dies within three years of gifting it.
The amount of tax owed decreases as the seven years elapse. These are the rates:
- Less than three years - 40 per cent
- Three years - 32 per cent
- Four years - 24 per cent
- Five years - 16 per cent
- Six years - 8 per cent
- Seven or more years - 0 per cent
This year the garden is our project though. It needed quite a bit of work as it was overgrown.
We are replacing the fencing for £170 and have spent £80 on plants so far. We've also put in a vegetable patch.
My boyfriend, who is an insurance assessor, was getting into building motorbikes when we started looking at homes and this one has a garage which is ideal.
It has space for two motorbikes and a rear access drive.
The house is near to our friends and we both walk to work in Norwich city centre as we don't have a car.
There are food shops and a gym within walking distance and a bus stop at the end of the road.
How did you afford the mortgage and fees?
We assumed we were never going to own a house. We were living in a rented flat and had the neighbour from hell and were having to move again.
I was really struggling to save any money as I spent years working zero hours contracts in hospitality and I didn't have a regular salary because the hours varied.
For example, Christmas would be super busy and I'd be working 50 hours a week but in January that would go back down to just 16 hours a week.
It meant that any extra money I made at the end of the year I needed to live on in January and February.
I'd work between 22 and 35 hours on a typical working week, which meant I earned enough to live off but not save.
I also didn't get any sick pay or holiday pay if I needed time off.
And then there was the cost of moving between rented properties all the time.
It would cost us around £200 in fees every time which added up.
My dad said rather than moving every six months had we thought about owning a home together? We said we could never afford it.
Then he told us his plan was for me to inherit money when he died but he thought it made a lot more sense to help us out now and see us enjoy a house.
We are not too proud and so we accepted his offer.
He said he could give us £15,000 but we only needed £14,400 in the end and managed to get the rest of the deposit together with a gift of £1,000 from my mum and £1,200 from our savings.
I had managed to save some cash from waitressing tips and I also did freelance blogging work as a side hustle.
The £166,000 house was slightly more than we were intending to spend but we did manage to knock £5,000 off the asking price.
By the time we found the house and applied for a mortgage I had an office job so we were more financially stable.
We ended up getting a 29 year mortgage with HSBC with monthly payments of £592.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan - The Government will lend you up to 20 per cent of the home's value - or 40 per cent in London - after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
It is a three-year fixed rate deal. We over pay this by £70 to £120 a month now because I got a promotion to digital marketing consultant.
We paid £606 on conveyancing fees, £366 on searches, land registration and the gifted deposit fee and £820 on stamp duty so that was an extra £1,792 that we had to find.
I set up a Help to Buy ISA when dad said he would help us so I had a few hundred pounds in there and money from freelancing.
We saved around £750 by doing our own Declaration of Trust from a template I found on the internet, rather than paying a solicitor.
That's just in case if we ever separated I would get back the money my dad put in rather than splitting everything evenly.
How did you afford to furnish it?
We had some furniture from renting as our last place was semi furnished but it was a tiny one bed flat so we only had a bed, sofa and a few things.
We decided to treat ourselves when we moved in and bought our first ever new piece of furniture which was an Ikea sofa.
But we also got a lot of things second hand. We got a dining table and chairs off Gumtree for £50.
My First Home
As soon as we moved in we started saving money and our first big grown up expense was a new boiler which cost £2,000.
What's it like having your own home?
As a renter we lived in awful places and paid out more money. It is so nice to be in our own place and feel secure.
We always wanted a cat but when you are renting no one wants you to have a pet.
About a year after we moved in we got a rescue cat. He is a long haired moggie called George Michael. He's our fur baby.
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