A leading Yorkshire lawyer has advised parents acting as “the bank of mum and dad” to think carefully about how they gift money to their children to fund their first step on to the property ladder.
Lending a helping hand to a child to buy a home is becoming more common with around half of all first time buyers receiving help from a parent.
However Kelly Kirby of York-based Langleys Solicitors, says parents must be aware of inheritance tax rules and ensure that all interests are protected to avoid a family dispute.
“There are a number of options but gifting is the easiest way to assist a child; by providing a deposit as a gift for anywhere between 10% and 25% of the cost of the new home,” said Kelly.
“A parent is able to give up to £3,000 a year to a child without attracting inheritance tax. A couple could, therefore, give a child £6,000 in a year.
“A parent can, however, give any amount of money to a child in a year as free of inheritance tax providing the parent does not die within seven years of the gift.”
Kelly also advises parents to consider a loan, at a lower interest rate than the child would pay to a traditional lender or interest-free. She says the family should enter into a legal agreement, which should be drawn up by a solicitor. This will ensure that the terms of the loan are properly documented to protect all parties.
“If there is no readily available lump sum to gift or loan to your child you can use your current assets, such as property or income, to fill this gap,” added Kelly. “An IFA or solicitor can assist you in this regard. Do not leave yourselves unprotected!”