To help younger people have a secure roof over their heads more and more families are turning to the Bank of Mum and Dad to get the job done. Reportedly families gifting or lending money to their children to help them buy a home will soon be the 10th biggest lender in the UK.
There are two main ways of operating gifting or loaning. A gift of money means that young people can then do what they want with the money, and the property of the Bank of Mum and Dad are no longer in control of that cash. The money is simply transferred into the children’s account for them to send it to the solicitor. Any gift needs to be reported to a mortgage lender.
Alternatively the Bank of Mum and Dad can loan the money, this is usually done through an unsecured loan repayable on demand with no interest, usually confirmed with a letter or some other simple document detailing the agreement.
But there are some things to consider with respect to tax implications and the detail of any mortgage that may also need to be secured to buy a property. If any gift of monies is not clearly documented as a gift and the date of when it is transferred it could still be counted as part of the parents’ estate when inheritance tax (IHT) is calculated. It is also likely that if a mortgage from a high street bank is also needed the bank will require assurance that the monies are a gift and that the parents have no claim over the property that would compete with the bank’s ownership.
It’s great to support our young people in the property market but it is worth making sure you have looked in detail at the implications of becoming the Bank of Mum and Dad.