How to protect the Bank of Mum and Dad

Parents have increasingly been relied upon as property prices increase with a recent report from Legal & General suggesting that over a quarter of all home buyers receive assistance from family or friends. However, when providing support to family members, few people are aware of the different options which may be available when considering how such support should be provided. These can include the following:

  1. Is the support provided as a gift? If so, it is important to understand that you will have no control over the funds going forward and, if your family member is or gets married, their spouse may have a claim against the sum which you have provided.
  2. Is the support provided as a loan?  If so, consideration should be given to entering into a loan agreement so that everyone has clarity as to what is expected in terms of repayment or interest.
  3. Would you wish to protect the funds for the benefit of your family member in the event of their marriage or cohabitation? If so, there are various options which can be considered, to include:
    1. Your family member entering into a prenuptial or cohabitation agreement.
    2. Protecting your funds by way of a declaration of trust or charge document to be registered against the property.
  4. What would be the tax consequences in providing support, both in respect of Capital Gains Tax and Inheritance Tax?

By considering the above options carefully, you will hopefully avoid any unforeseen consequences of what is of course intended to provide future financial security for your family.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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