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The Bank of Mum & Dad

The Bank of Mum & Dad

Your offspring may need financial help to buy their first home – but take care how you offer them money, or much of it could be lost.

Paul and Mary came to me as they wanted to help their 25 year old son Jim buy a flat.  Like many young people Jim has been finding it hard to obtain a mortgage for his first home, and the only solution has been to turn to the bank of Mum and Dad to assist with the deposit. Paul and Mary wanted to know how best to go about this – I advised that they should give consideration to the way in which they offer their money.

Is it a gift? It is natural to wish to make gifts to children and it can sometimes help the parents with their own inheritance tax issues. However, if Jim’s girlfriend moves in or he marries what happens if they split up later? She could well walk away from the relationship with some of Paul and Mary’s hard-earned cash.

Is it a loan?  Paperwork, no matter how simple, should always be drawn up at the outset if the intention is that it is paid back.  They need to consider whether it will be subject to interest; and whether it is repayable on demand or only in certain circumstances.  Paul and Mary can also put a charge (similar to a mortgage) over the property, although as Jim is also going to be getting a building society mortgage this may not be possible.

There are other ways of doing it.  Some parents set up a trust and share in the purchase of a property – Jim could have the use of the property, but they have ultimate control, and it provides much more protection against Jim’s partner having any claim against their contribution.

Ironing out the wrinkles in advance incurs legal costs for paperwork to be drawn up, but the expense is far outweighed by the peace of mind that comes from knowing everything is financially secure.

Rosalind Watchorn Solicitors are at 10 Kenwood Park Road Sheffield.  We specialise in wills, probate and issues for elderly clients as well as property matters and were the first CQS accredited lawyers in Sheffield.  Phone Barbara or Stewart for a conveyancing quote:  0114 2290160 

One Response to The Bank of Mum & Dad

  1. Jenny says:

    Seems like gifting might be a good idea if it helps parents with their inheritance tax?

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