Bernard Seymour of Affinity Resolutions looks at the legal issues involved

The Bank of Mum and Dad is well known; we all want to help our children when we can. But there are issues to consider. Here we look at when the purpose of the money is to help with the purchase of a property.

When the money is a gift

Documentation Write down the amount you are gifting and the date the money is to be paid. You and your child should sign this. If the gift is from both parents, both should sign. The document need not be
formal, just a record of the transaction. Who to notify The solicitor handling the purchase should be told you are helping out, as should the lender.

Inheritance tax If you die within seven years of gifting the money, the money will be considered part of your estate and your executors may have to pay inheritance tax. If you die after seven years, the gift
will not attract inheritance tax. It’s a good idea to leave with your will a copy of the document saying when the gift was made.

Relationship breakdown (unmarried) Perhaps the biggest fear for parents is that they’ve helped their child financially, but their child’s unmarried partner takes the money if the relationship does not work. If the property is only in your child’s name, their unmarried partner may still have a claim if they have contributed to the mortgage or paid other monies with the belief that they would own a share.

If the unmarried partner has given up their own home (even if it was tenanted) and has lived with your child for a period of more than two years, they could also have a claim. Even if a claim is ultimately defeated, the cost of fighting one could easily eat into the amount of your gift.

There are a number of ways where the risks of this happening can be reduced:

• • Ensure your child and their partner have a Living Together Agreement, which will detail financial contributions and what happens in the event of a breakdown.

• • Suggest your child makes a will, which sets out what happens to the property. If your child buys the property jointly with their partner, but their financial contributions are not equal, make sure your child discusses this with their solicitor, who may advise on a Declaration of Trust. And again, suggest your child makes a will.

Relationship breakdown (married) In the case of a married couple, on divorce the property will form part of the overall assets, whether or not it is in joint names. Any parental financial contribution could be disregarded. While harder to protect a parental gift in these situations, a prenuptial agreement may carry weight.

When the money is a loan

Documentation It is important that both parties’ expectations are clearly set out in a loan agreement and this should be drafted by a solicitor. The loan agreement should cover areas such as the repayments, what happens if repayments are not made, and when you expect the loan to be repaid.

It is possible to take a charge on the property, which will protect your money in the event of default or relationship breakdown and means you can force a sale to recover your money.

Who to notify Make sure the solicitor who is dealing with the purchase is aware that the money is a loan. The lender should also be told. This may affect the mortgage offer as the lender will view your loan as
another debt.

Advice Always take professional advice before gifting or lending money. The risks are too high if not. We work with solicitors and financial advisers who have expertise in this and can help you.