skip navigation

Bank of Mum and Dad Lending Issues

Tthe 'bank of Mum and Dad' is  unsurprisingly one of the leading sources of finance for house purchase – it was estimated that 317,000 mortgages were undertaken with parental assistance in 2018. The survey, sponsored by the Centre for Economics and Business Research and Legal & General, revealed that parents now provide finance for a quarter of UK property purchases with an average contribution of £18,000.

Assisting children to get a foot on the property ladder can have a number of consequences, both in legal and tax terms, depending on how the finance is provided. Here are just a few of the potential issues.

Tax Issues

If finance is provided by way of a loan and interest is charged, that is potentially taxable to Income Tax. If the loan is made on the basis of 'taking a share' in the property and it is then sold at a profit, Capital Gains Tax may be payable. Where a loan is made and not repaid, it will remain in the lender's estate for Inheritance Tax purposes.

Other Issues

If the property is being bought with the aid of mortgage finance, it is normal for any private loan to rank behind the commercial lender in terms of repayment, so if the property were sold for less than the outstanding mortgage, the parental loan would not be able to be repaid from the sale proceeds.

Where the loan is made to a couple, there is the chance that, if the relationship breaks up, repayment may be in jeopardy.

Where there is no formal documentation (or inadequate documentation) of the nature and terms of the advance, there are also risks that a dispute may arise over the precise details of the agreement.

 

For advice on the best way to structure financial help you wish to give to a family member, friend, or anyone else, contact us.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
 
 
Home | About Us | Our Services | Our People | Firm News | Library | Contact Us
Bobbetts Mackan Solicitors & Advocates
Ground Floor, Griffin House, 15-16 Lower Park Row, Bristol BS1 5BN
T 0117 929 9001 F 0117 3164900
VAT Registered No. 137 8318 52
24hr Criminal defence helpline Tel 0117 9298987
E info@bobbetts.com

Authorised and regulated by the Solicitors Regulation Authority (SRA). SRA number 70535.

Copyright © Bobbetts Mackan. All rights reserved
Terms and conditions
[smaller] Change text size [larger]