The number of parents and grandparents willing to assist their family has mushroomed since 2009, with the “Bank of Mum and Dad” funding more than a quarter of all home purchases.
A 20% deposit for a first home can easily be over £25,000; student fees are currently £9,250 a year and together with loans for living costs many young graduates are saddled with over £40,000 of debt; and the average wedding costs in the region of £25,000. Is it any wonder that younger generations are increasingly reliant on their parents? Helping the next generation can be very costly however.
But not everyone thinks about the legal implications of gifts or loans to their children or grandchildren. Before contributing to a property purchase you need to be clear about whether this is a loan to the children, and if so on what terms. If it is a gift what are the risks of your child’s partner or spouse taking advantage of this in the future and claiming a share in it themselves? Do you want to protect it, for example, by putting it in a trust so that the capital amount is sheltered? Do you want to have the property, or a share in it, in your own name? If so what would be the inheritance tax consequences or the capital gains tax implications when the property is sold or you transfer it to your child. Sometimes what you do will be dictated by a third party if your child is getting a mortgage.
It can be even trickier when two generations decide to live together. These days it is not so unusual for parents to gift money to a child to buy a property and then move into the “granny flat”. But beware – this can bring some unforeseen tax consequences. Things can go wrong too when various family members with differing expectations and needs move in together. There is nothing quite as tricky as trying to unravel some of these arrangements when they are already in place.
For some there may be inheritance tax implications with gifts of any sort; although there are annual exemptions and further exemptions for wedding gifts on marriage. Regular gifts out of excess income can also be useful.
It is always better before embarking on large gifts or loans or other arrangements with family members to seek legal advice first from specialist lawyers. The tax implications are important; but we can also advise about ways your interests as well as those of your children can be best protected.
If you would like to discuss future planning in a free initial consultation, contact Rosalind Watchorn Solicitors today to discuss your situation with a member of our specialist will-drafting and later-life planning team. Contact the office to arrange an appointment with one of our solicitors.