Bank of Mum and Dad

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“Research by Legal & General in 2019, estimated that parents are collectively lending or gifting their offspring £6.26bn – a figure that’s high enough to rank the ‘Bank of Mum and Dad’ tenth in a list of UK lenders.”

(Source: Leaving the Bank of Mum and Dad | Legal & General (  )

Studies have shown that in 2019, someone in full time work would have to spend 7.8 times their annual income to purchase a home and whilst many are able to afford the mortgage payments it is the inability to raise a deposit which creates a barrier to entering the UK housing market.

Post pandemic this figure is expected to increase due to spiraling property prices and a desire for a parent or grandparent to provide financial support at key stages of their child or grandchild life and see them reap the benefits during their lifetime.

When considering whether to provide a gift it is important to take into the account the following: –

Before you start:

  • Do seek advice from a financial adviser who will be able to provide advice on your specific circumstances to ensure that you do not endanger your own future financial stability as the Cebr/Yougov survey found that one in five (21%) over 55s had seen a reduction in their income due to the pandemic.
  • A financial advisor will be able to advise you of the tax implications involved as the gift may be a potentially exempt transfer for the purposes of Section 3(a) Inheritance Tax 1984
  • Consider who is the gift for? This becomes relevant if your son and daughter are purchasing with a partner. You need to consider if the gift is to both or just your child and is it conditional upon your child protecting their share via a declaration of trust. Any gift will need to be reported to your prospective mortgagee and you will be asked to produce evidence as to source of funds.
  • Would a loan be preferrable thereby ensuring repayment if the relationship breaks down?  Consent of the first mortgagee will be required if the loan is to be secured against the property and some lenders may not agree.

 If you want to protect your gift you may wish to consider entering to a Declaration of Trust. This is legal document which sets out your respective shares in the property and acknowledging contributions made. Declaration of Trust are likely to cost in the region of £250 plus vat but will be considerable cheaper in trying to recoup your money, for example, should your child’s relationship break down in the future and you are unable to recover the gift made if they purchase with a partner.  

There may be other legal implications such as you need to survive for seven years or more for the gift not to fall within the inheritance provisions. We strongly recommend that you seek legal advice if you intending to gift money to your child to assist in the purchase of a property.

Neale Turk LLP is committed to providing an outstanding service to all our clients and able to offer advice in all areas. Please contact us if you require any assistance.

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