Helping Your Child Buy a Property: What You Need to Know

The "Bank of Mum and Dad" is one of the biggest lenders for first-time buyers in the UK. Thousands of families help their children get onto the property ladder. But before you promise help, there are some important things to consider.

Establishing at an early stage whether the help you provide is affordable to you is key. If it is not, you may be able to assist them secure other support to achieve their goal of home ownership such as one of the government schemes.

If you decide to give financial support yourself, being open with other members of your family can avoid issues in the future. You also need to consider how you are going to provide financial help.

Let's break down some of the options to think about:

1. Buying a Share in the Property with Your Child This can be a good option if you expect your child's earnings to increase in the future. However, be aware of the extra 3% Stamp Duty (Land Tax) charge for those who already own a home. It's also a good idea to have a formal agreement in place to set out your expectations regarding property maintenance costs etc.

2. Giving a Gift This is clearly the most attractive option for your child. But you need to consider if you can afford it. Will you be left with enough in an emergency or the death of one of you? What would be the implication if one of you needed care? You can gain peace of mind by forecasting these “What if?” scenarios with cashflow modelling. Also, think about the impact on other family members. Do you want to give your other children a similar amount? When will this be? You may need to update your Wills to reflect this. Gifts can help minimize inheritance tax but will affect your inheritance tax allowance for the first seven years, so seek tax advice.

3. Making a Loan Many parents prefer loans over gifts to protect their financial security and retain control of the money. This can safeguard the money in case of a future divorce or financial hardship for the child. But there are important considerations:

• Lender’s Requirements: If there's a mortgage, banks or building societies need assurance that no one else has an interest in the property. They usually require a form stating the money is a gift, not a loan.
• Divorce Concerns: It might be simpler to arrange a Pre-Nuptial or Post-Nuptial agreement to protect your loan in case of divorce. All parties need independent legal advice and full financial disclosure. Agreements must be fair and can't leave anyone in need.

You might also consider putting your gift into a trust, which could own the property or make a loan. Trusts, however, also face the 3% Stamp Duty charge and potential issues in a divorce.

You should also consider tax. We've mentioned the Stamp Duty implications. But you also need to consider Inheritance Tax and Capital Gains Tax.

In conclusion, be clear about your goals and concerns and work with your professional advisers to find a solution that works best for you and your family.

‘The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.’