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Protecting the Bank of Mum and Dad

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With rising property prices, student debts and stagnant wages, it is a tough time to be a Millennial (under 35) in London. Research shows that this generation could be the first ever to be financially worse off compared to their parents.

It is unsurprising, therefore, that the Bank of Mum and Dad is becoming increasingly involved in helping young adults in their twenties and thirties make it on to the property ladder. With the added incentive that Stamp Duty Land Tax has recently been abolished for certain first-time buyers, more and more of our clients are looking to help the younger generations in their family at earlier points in their lives. Their view is often that their children (and grandchildren) need the money more than they do and the earlier they can help them, the bigger the impact they can have. In addition, making such gifts may have the added advantage of being effective tax planning for their own estate.

There are, however, important details that should be discussed if you are considering making a financial contribution to a family member. One of the key questions is whether you wish to make a gift or whether you intend the financial contribution to be a loan.

If you chose to make a gift, the timing and method of the gift is critical to avoid you or your children facing an unexpected tax bill. It is also important to consider your circumstances and your needs and requirements for the future.

Taking the time to implement careful estate planning will not only allow you to make a positive financial contribution to your children’s future, but could also reduce the amount of tax payable on your own estate as well.

Our specialist Private Client team would be happy to meet with you to discuss your circumstances and the estate planning options available to you. Please contact
Charlotte Mandy if you would like more information in relation to lifetime giving and how this may benefit both you and your children.

If you are considering loaning money to your children, our Residential Property team has a great deal of experience assisting parents with their decision on whether to secure their investment in their child’s property.

If you are not making an outright gift, there are three typical methods of parents securing their investment. The first is to become a legal owner. As an owner of the property, you have the most control over dealings with the property as you would need to sign any relevant documents in connection with any sale or re-mortgage.

Alternatively, you may choose to take a charge over the property. In order to sell or re-mortgage the property, the owner would need to pay off the amount owing to you or you could waive or postpone the amount owing to another property.

The final option is to create a Declaration of Trust with the property owner which can reflect your interest in the property and will dictate how sale proceeds should be divided.

There are, of course, various advantages and disadvantages of each option and TWM’s Residential Property team can assist you with any questions concerning securing your investment in your child’s property and in finding the best solution for you. If you would like to know more, please contact Jonathan Potter who would be delighted to discuss your requirements.