Bucks &amp; Oxon


<p>Getting your kids on the property ladder is the proverbial cigar, but it can be something of a pipe dream with property prices and cost of living going in one direction only. So, inevitably the phone call comes (or perhaps over a slap-up meal if they’re pulling out all the stops) and you have to make the decision about whether to become the Bank of Mum and Dad (or BoMaD for the acronym gen).</p>



<p>You’re not alone – literally billions are provided each year by the BoMaD, making it the 11th largest mortgage lender in the UK. But how to give them (and often their beau) a leg-up without falling foul of lawsuits, feuds and chainsaws (yes!). Muddy’s got your back &#8211; with a little help from <a href="https://www.ibblaw.co.uk/people/gary-bunce" target="_blank" rel="noreferrer noopener">Gary Bunce</a>, Head of Residential Property at <a href="https://www.ibblaw.co.uk/ibb-private-client" target="_blank" rel="noreferrer noopener">IBB Law</a>.  </p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1000" height="667" src="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104048.042-1000x667.jpg" alt="Gary Bunce, IBB Law" class="wp-image-177445" srcset="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104048.042-1000x667.jpg 1000w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104048.042-800x533.jpg 800w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104048.042-400x267.jpg 400w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104048.042.jpg 1500w" sizes="(max-width: 1000px) 100vw, 1000px" /><figcaption class="wp-element-caption">Gary Bunce, IBB Law</figcaption></figure>



<h2 class="wp-block-heading" id="h-is-it-a-good-idea-to-lend-money-to-family-members-for-property-purchases">Is it a good idea to lend money to family members for property purchases?</h2>



<p>If you can afford to help a child or family member it can be hugely rewarding to see them buy their first property, and in some cases it can be an investment. However, there are a number of things to consider before doing so, namely whether it is a gift, loan or purchase of a slice of equity.&nbsp;Seeking advice from a tax expert and an Independent Financial Adviser are a must to work out what is right for you, your family and your money!</p>



<h2 class="wp-block-heading" id="h-how-much-do-parents-usually-give">How much do parents usually give?</h2>



<p>It’s a piece of string situation but the average contribution of families and friends is usually well north of £20,000, or can be over £30,000 in London.”</p>



<h2 class="wp-block-heading" id="h-and-do-most-people-gift-it">And do most people gift it?</h2>



<p>Yes. In recent years, on average 59% received it as a gift with no requirement to pay it back, and 14% received a mix of gift and loan. Only 6% were charged interest and only 8% of those doing the lending wanted an equity stake in return for their contribution.&nbsp;</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1000" height="667" src="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104126.256-1000x667.jpg" alt="Guide to lending your kids money to buy a property" class="wp-image-177443" srcset="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104126.256-1000x667.jpg 1000w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104126.256-800x533.jpg 800w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104126.256-400x267.jpg 400w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104126.256.jpg 1500w" sizes="(max-width: 1000px) 100vw, 1000px" /></figure>



<h2 class="wp-block-heading" id="h-what-if-they-re-shacking-up-with-a-partner">What if they’re shacking up with a partner?</h2>



<p>While parents may be happy to support their own children, if the contribution ends up with someone outside the family, it’s likely to cause additional problems when there are considerable sums involved&nbsp;and if the relationship breaks down.</p>



<h2 class="wp-block-heading" id="h-have-you-come-across-any-horror-stories-of-this-happening">Have you come across any horror stories of this happening?</h2>



<p>Yes. In Farrell v Burden, Mrs Farrell loaned her son £170,000 in 2005, and he repaid £90,000 later that same year, but with no further capital sums or interest paid after that. When he died 11 years later, leaving nothing to his mother, she took action to recover the outstanding amount she said was due from his estate. But the widow, Ms Burden, claimed that the money had been given to the couple and in the absence of any documentation, the court said the payment was a gift in the eyes of the law. Mrs Farrell was ordered to pay the costs of the estate in the action, reportedly around £100,000, as well as losing her claim for the money. She appealed but the High Court upheld the judgement.</p>



<h2 class="wp-block-heading" id="h-but-we-all-get-on-and-have-shaken-on-an-agreement-do-we-really-need-a-signed-contract">But we all get on and have shaken on an agreement. Do we really need a signed contract?</h2>



<p>We’re seeing more challenges to estates or challenges over divorce settlements when the terms may have been discussed, but not clearly set out in writing and the appropriate arrangement entered into. While the cost of preparing such agreements may seem unnecessary in the happy situation of handing over the cheque to help children onto the property ladder, the potential costs of litigation further down the line can be considerably more than the original loan – as happened with poor old Mrs Farrell.</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1000" height="667" src="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104153.390-1000x667.jpg" alt="Guide to lending your kids money to buy a property" class="wp-image-177444" srcset="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104153.390-1000x667.jpg 1000w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104153.390-800x533.jpg 800w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104153.390-400x267.jpg 400w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T104153.390.jpg 1500w" sizes="(max-width: 1000px) 100vw, 1000px" /></figure>



<h2 class="wp-block-heading" id="h-what-are-my-options-can-it-be-part-loan-and-part-gift">What are my options? Can it be part loan and part gift?</h2>



<p>When parents contribute money to the purchase of a property by a child and partner there are several scenarios: the payment might be a gift to the child, it might be a gift to the child and partner; it might be a loan to the child or a loan to the child and partner; or it may be that the parents intend to be entitled to a share in the property. Whether to avoid later disputes, or simply to resolve any unclear thinking at the time, it’s vital to have a written record of what was intended.</p>



<h2 class="wp-block-heading" id="h-what-if-the-couple-splits-and-i-want-my-child-to-be-able-to-take-out-the-share-i-gifted-to-them-both-nbsp">What if the couple splits and I want my child to be able to take out the share I gifted to them both?&nbsp;</h2>



<p>If there was no written agreement, then recovering the funds may be very difficult &#8211; impossible sometimes. After all, it was a gift. Before making the gift a Declaration of Trust or a Cohabitee Agreement should be made between the couple confirming how beneficial shares in the property are to be held and repaid should they part company, sell the property or have a right of first refusal to buy each other out. &nbsp;</p>



<h2 class="wp-block-heading" id="h-have-you-heard-any-horror-stories-of-a-property-wrangle-when-a-couple-have-split">Have you heard any horror stories of a property wrangle when a couple have split?</h2>



<p>A case in the UK saw a couple that decided to stay in the family home but refused to share the same bedroom. To enforce separation, they built a wall down the centre of their bedroom, creating two tiny spaces, each barely fitting a bed and personal items. </p>



<p>In one instance in Germany, a man physically divided the family home in two after a divorce by building a brick wall straight down the middle of the house. The wall was constructed indoors, separating rooms and blocking doorways, leaving each party with half the space but not much functionality or flow.</p>



<p>In a famous case from Cambodia, a man took a chainsaw to his house and split it in half, taking his portion and leaving his ex-wife with the other. They agreed to divide their assets equally, and the husband took it quite literally!</p>



<p>It&#8217;s important to note, of course, that while these cases are reported in the media, they are relatively rare and often serve as cautionary tales about the complexities of shared living spaces post-separation!</p>



<h2 class="wp-block-heading" id="h-ok-forewarned-say-we-go-for-the-loan-option-what-next">OK. Forewarned! Say we go for the loan option. What next?</h2>



<p>If the funds are to be a secured loan and repayable, then the main mortgage lender will need to formally consent to the BoMaD loan. The main lender will hold a first legal charge secured against the property and BoMaD’s private funds will be secured by way of a second legal charge. This offers more security to the BoMaD and mitigates stamp duty from being payable.</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1000" height="667" src="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T103912.788-1000x667.jpg" alt="Guide to lending your kids money to buy a property" class="wp-image-177446" srcset="https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T103912.788-1000x667.jpg 1000w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T103912.788-800x533.jpg 800w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T103912.788-400x267.jpg 400w, https://dev.muddystilettos.co.uk/bucksoxon/wp-content/uploads/sites/3/2024/11/Untitled-design-2024-11-19T103912.788.jpg 1500w" sizes="(max-width: 1000px) 100vw, 1000px" /></figure>



<h2 class="wp-block-heading" id="h-should-my-name-go-on-the-title-as-an-owner">Should my name go on the title as an owner?</h2>



<p>It is all about control and trust. A gift essentially means you are trusting your child to secure these funds with a written agreement made with their partner. You are out of the picture as you gave the money away. A secured loan at least means your funds will be repaid at some point with or without interest being charged. Becoming a joint legal owner means that you have equal control of the use and future dealings of the property. If BoMaD join on the title, then bespoke mortgage arrangements with the main lender will need to be brokered by an experienced Independent Financial Adviser. Unlike the secured loan option, joining on the title triggers higher rate stamp duty.&nbsp;</p>



<h2 class="wp-block-heading" id="h-is-there-any-other-paperwork-to-consider-for-further-down-the-line">Is there any other paperwork to consider for further down the line?</h2>



<p>A Declaration of Trust&nbsp;should be done before the property is purchased. However, it can be entered into later if the couple agree to do so. Also, the Declaration of Trust is key for inheritance tax planning purposes&nbsp;as&nbsp;documentation to&nbsp;evidence&nbsp;when the money was paid and confirming that it was made with the intention of being a gift may be crucial&nbsp;&#8211;&nbsp;if it is to take advantage of the rules concerning such gifts when inheritance tax is calculated on the death of the giver.&nbsp;</p>



<h2 class="wp-block-heading" id="h-time-to-lawyer-up-buttercup">Time to lawyer up, buttercup?</h2>



<p>The sums involved and the complexity of property purchases make it essential to get the right advice&nbsp;to make the right choice for you &#8211; before you part with your money.&nbsp;None of the Top Ten mortgage lenders would hand over the cash without having their interests properly protected and the Bank of Mum and Dad need to take the same approach.</p>



<p><strong>Time to talk to Gary? Get in touch with <a href="https://www.ibblaw.co.uk/" target="_blank" rel="noreferrer noopener">IBB Law</a></strong>.</p>



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Helping the kids buy a property? Here’s how to do it painlessly

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