Bank of Mum and Dad

New research shows that UK parents lend their children eye-watering amounts of money a year to help them on to the property ladder. But what do you need to know before making that bank transfer?

The doors are open at the Bank of Mum and Dad and there’s a queue forming outside – a very long one. That’s according to new data from Legal and General which reveals that British parents will lend their progeny a total of £5bn a year to buy a home in 2016, making the Bank of Mum and Dad one of the top ten mortgage lenders in the UK and responsible for some level of finance in a quarter of all purchases.

Indeed, parents are set to provide an average of £17,500 for an estimated 300,000 mortgages. And Granny and Granddad are chipping in too, with an estimated 22,500 purchases supported by the older generation.

All well and good – who among us doesn’t want to see our children and grandchildren get on in life? But, before splashing the cash, it’s important to speak to a Wills and Probate professional about the implications such a loan could have on the whole family’s future and the best way to manage your donation.

First off, there’s the thorny issue of Inheritance Tax. If the older generation gifts the younger the sum and then dies within seven years, anything over £3000 a year will be taxed. So paying an annual amount – rather than a one-off lump sum – has advantages.

It’s also worth asking about something called ‘gifts out of normal expenditure’ – an exemption which allows people to donate an unlimited amount of ‘surplus’ income, provided the donations are regular.

Then there are the rules around deprivation of assets – again they’re quite complicated. In layman’s terms, savings or other capital passed on to family could impact on your eligibility for local authority funding assistance with care home provision and means tested benefits.

And what about the age old problem of a broken heart? If you lend money to your offspring to buy a home – and his or her partner is involved – a split could see your investment dwindle. Many parents are even insisting that their children take out pre-nups before making a loan!

So, before you set up shop at the Bank of Mum and Dad, have a chat with us about the best ways to protect yourselves and your children for the future – we’ve been advising clients on these matters for over 5 years.  Contact us on 0208 537 3448 or wills@ashtongrace.co.uk