8th November 2018
Bank of Mum and Dad
The Bank of Mum and Dad is a significant investor in the UK housing market. It is the equivalent of a £5.7bn mortgage lender. It's supporting more people than ever: 27% of all buyers will receive help from friends or family in 2018, up from 25% in 2017 - purchasing almost 317,000 homes (source Legal and General)
In this blog we review how can parents help their children onto the property ladder and protect their finances?
There are a number of different ways in which parents can make payments to their children.
- A loan - payment could be made via a loan, an agreement sets out the terms of the loan and makes it clear that the payment is not intended to be a gift, to avoid misunderstandings in the future.
- A gift - parents can make a gift to their child. Ideally this should be recorded and it's worth noting that there may be inheritance tax to pay if the parents do not survive 7 years from making the gift.
- Declaration of Trust - parents could enter into a Declaration of Trust with their child to protect their contribution. This document can make clear the amounts contributed to the purchase and how the proceeds should be divided when the property is sold. However, it is important to consider any additional stamp duty land tax which may be payable if the parents already own a property of their own. This is also a useful document for a couple who are contributing unequal amounts to the property.
Before any payments are made, buyers should notify the conveyancer of any arrangements, if money is being loaned/gifted in relation to a property, so that appropriate advice can be given. This is a requirement of Mortgage Lenders and also Anti Money Laundering legislation.
Circumstances can change over time, so it is better to have the agreement in writing to avoid any costly disputes in the future, if the family relationship unexpectedly breaks down.
One case which stands out is a high court decision in 2018, which involved parents lending their daughter £90,000 to purchase a property, only to find that their daughter did not have to pay them back.https://metro.co.uk/2018/04/29/couple-gave-daughter-90000-loan-but-wont-get-a-penny-back-7507541/
The case was featured in national newspapers where it was reported that the parents, David and Glenda Joy, said that the £90,000 was a loan to their daughter but their daughter argued that it was a gift. Unfortunately for Mr and Mrs Joy this was only a verbal agreement and after a bitter court battle they lost their case.
This not only led to the couple facing significant financial consequences but also the stress of a family breakdown.
If you are thinking of gifting or lending money to family, or buying property it is important that you get legal advice and assistance.
At Roebucks our Private Client Department has a strong team of 7 qualified lawyers who would be happy to discuss the protection of assets and inheritance tax planning with you.
We offer a first-class conveyancing service at the best possible price and will ensure that your move is as smooth as possible.
We provide stress free and cost effective services for all conveyancing sectors whether it's Residential, Commercial, Town and Country Planning or Farming and the Environment, covering expert advice on sales, purchases, planning and tenancies.
We will ensure that funds from the bank of mum and dad are appropriately administered and protected.
Contact our Conveyancing Team and/or our Private Client Team on 01254 274000 to see how we can help you, or alternatively call into any of our offices in Blackburn, Accrington, Clitheroe or Leyland for a no commitment chat.