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Potential Pitfalls of Bank of Mum and Dad

August 29, 2018 10:47 am | This post was written by mmadigital | Posted in: Dispute resolution, Family, General news, House sales and purchases, Salehs news

Potential pitfalls of Bank of Mum and Dad

It is no surprise that first time buyers across the country are struggling to get together the required deposits in order to secure their dream house. Most therefore look to a parent for some financial assistance to get their first footing on the property ladder.

There are a number of ways that parents can assist their children when purchasing their first property. This could be by way of a gift, a loan or an investment. More mortgages are also enabling parents and other family members as either joint borrowers or guarantors to enable first time buyers to obtain better mortgage deals.

First and foremost, both parents and the child receiving the gift should ensure that their intentions are clearly documented when providing the financial contribution.

Whilst all parties involved in this are usually trusting of each other, a recent case in Cornwall highlights how things can change. The parents provided their child with £90,000 which they argued was a loan. The child advised the court that the amount was in fact a gift towards their purchase and therefore not repayable. In the absence of any evidence of a loan being provided, the courts sided with the child and therefore the parents are unable to pursue the £90,000 that they were expecting to enjoy during their retirement.
Therefore, if the parents intend on providing a loan, they should ensure that some form of loan agreement is drawn up to evidence this agreement. Whilst some parents may not view the contribution to their child as a loan, they may view this as an investment and therefore they would be wise to require a Declaration of Trust to be put in place to protect their interest in the property. The Declaration of Trust would provide the parents with a beneficial interest in the property for the amount (or percentage of equity) that they had provided to their child.

When providing gifts or loans, parents should also ensure that they take tax advice. Depending on how the contribution towards the purchase is provided, Inheritance Tax may be an issue or the higher rate of Stamp Duty may come into play if the parents are acquiring an interest in the property by way of mortgage or Declaration of Trust.

If you are thinking of gifting a family member a sum towards their purchase, contact our Conveyancing Department for further information on 0161 434 9991. With Salehs you’re in safe hands.


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