With high house prices, rising interest and mortgage rates and the cost-of-living crisis to contend with, more and more people are struggling to find the funds to get onto the property ladder.

It’s therefore unsurprising that financial gifts from family members are now supporting a third of property transactions, according to Legal & General. With that figure set to soar over the coming years, our residential property solicitor offers some helpful guidance for those wanting to help their child or a family member purchase their new home.

I want to pay part of my child’s deposit. Should I make a gift or a loan?

Firstly, you need to decide whether you will need the money back at any time. If the answer is “yes” then the money must be loaned. If you decide to gift the deposit, you need to be aware that, once paid, you have no right to reclaim the money whatever your or your child’s financial circumstances.

My child is buying the property with another person. How do I protect the investment?

If you are making a loan to your child or family member, this can be protected by a charge being registered at the Land Registry.

If your child is raising a mortgage to finance the purchase, they will need to obtain consent for you to have a second charge. While some lenders may object initially, it’s worth persevering as a charge is the best way to secure your money.

If you are making a gift, you need to decide and document whether the gift is just to your child or to them and their partner. If the gift is to your child, you need to ensure they protect their interest by entering into a Deed of Trust and/or a Cohabitation Agreement. A solicitor can help with this.

Are there any taxation issues I should consider?

If you gift money to your child, this is a potentially exempt transfer (PET) for inheritance tax purposes (IHT). If you survive for seven years the gift becomes exempt from IHT. If your child lives in the property as their principal/main residence, any gain will be exempt from capital gains tax (CGT). Gifting money to your child to invest in a property can therefore be a very efficient method of tax planning.

If you make a loan to your child, any interest payable will be part of your income for tax purposes. In addition, if the loan is protected by a trust deed giving you a percentage share of the property, any increase in value of your share over your annual exemption (currently £6,000, reducing to £3,000 from April 2024) will be chargeable to CGT.

Find out more about Inheritance Tax.

Will I need to see a specialist?

The answer to this question is almost certainly yes – particularly if the money advanced is a loan. While this adds to the costs incurred, if you wish to protect your and your child’s investment, it is important to ensure the nature of the transaction and the intentions of all parties are properly considered and protected.

Why should I use Thomas Dunton?

We offer a wide range of legal services within the firm, which means we have the expertise to go above and beyond what you would expect, while helping you plan for things you may not have even considered. This includes buying and selling your home, drafting deeds of trusts, cohabitation agreements, inheritance tax advice and making and changing a will, to avoid any complications in future.

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Or for more advice and guidance, or to find out more about how Thomas Dunton’s residential property solicitors can help you with buying, selling or
renting out your property, please contact us on 01689 822554 or email us at conveyancing@thomasdunton.co.uk. 

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