Bulletins | March 13, 2017

When it makes sense to visit the Bank of Mum and Dad

As many first time buyers continue to struggle to get onto the property ladder, it has become increasingly common for parents to assist their adult children with their first purchase. However, there is often some uncertainty among parents about how best to structure the gift/purchase.

As a parent, broadly speaking, your options are as follows:

  • Gift the property to your child. This is a simple way of helping your child and an effective form of inheritance tax planning for your estate. However, it leaves your investment vulnerable to risks in the event of your child’s divorce, bankruptcy or death. It also leaves you with no control, should your child wish to sell the property and spend the sale proceeds.
  • Co-ownership with your child. Again, this would present an inheritance tax planning opportunity for you. It would also give you some control over the investment and offer some protection against the risk of an unfortunate change in your child’s financial or personal circumstances.
  • Creation of a trust to own the property. You could transfer funds into a trust and the trust could purchase the property. This option provides you with the possibility of having maximum control whilst also offering inheritance tax planning opportunities for both you and, over the long term, potentially your child. As trusts have their own legal identity, you would need legal advice on the right trust for you, any setup and ongoing tax, and administration charges.
  • Loan to your child. You could loan your child the funds to buy a property and then take a charge over the property. This could be a solution if your main priority is to reduce the risk of losing the funds that you have invested rather than seeing the investment as part of your inheritance tax planning.

Due to potential complexities of these options, any decision would need to be with the benefit of expert legal advice.

This article was first published in The Resident Magazine.