The Bank of Mum & Dad
In the past decade it has become more and more common for homebuyers, and particularly first time buyers, to receive a contribution from parents or other family members towards the deposit for their first home. Accepting money, whether as a loan or a gift, can sometimes be difficult for both parties involved, especially if parents feel pressured to help out or have to make certain sacrifices in order to do so. Similarly, those on the receiving end of the offer can end up feeling in debt to their parents which can cause a strain on the relationship.
For both parties, it is best to be open and clear about the arrangement. Is the sum of money a gift or is it a loan? If it is a loan, is there a formal or informal agreement about how and when it will be repaid? If it is a gift, have both parties acknowledged that there will be no repayment? Family disputes over ‘borrowed’ money are not uncommon; however it’s important to ensure that everyone knows where they stand prior to any money being given.
While most families tend to take an informal approach, don’t discount the idea of taking legal advice or drawing up a contract – for example agreeing what will happen if the couple buying the property split up further down the line.
For both parties, it is best to be open and clear about the arrangement. Is the sum of money a gift or is it a loan? If it is a loan, is there a formal or informal agreement about how and when it will be repaid? If it is a gift, have both parties acknowledged that there will be no repayment? Family disputes over ‘borrowed’ money are not uncommon; however it’s important to ensure that everyone knows where they stand prior to any money being given.
While most families tend to take an informal approach, don’t discount the idea of taking legal advice or drawing up a contract – for example agreeing what will happen if the couple buying the property split up further down the line.
Below are some helpful tips if you are considering loaning or gifting to family or friends:
1. Inform your conveyancer – As soon as your offer is accepted, ensure the conveyancer is aware that some or all of the deposit is a gift.
2. Provide evidence that the money was a gift and not a loan – When giving a gifted deposit; the lenders will need written consent – often as a letter or part of a form – confirming the money was a gift and the provider has no personal interest in the property.
3. Ensure you have the right proof of Identification – This may sound simple, but quite often photocopies of ID will not be accepted by a solicitor. This can become problematic if the person giving the gift is either overseas or unavailable.
4. Have the necessary bank statements at the ready – Part of the process involves anti-money laundering checks which includes checking bank statements from the person giving the gift and the recipient, to confirm that the money was earned legitimately.
5. Understand what a gifted deposit means for you – Most importantly, if you are the contributor of a gifted deposit, you must be aware that once you complete the process, you no longer have any rights to the money or the property.
Bear in mind that gifting an amount of money isn’t as simple as transferring a payment into a bank account. There is a gifting process that will need to be followed, and both parties should be made aware of the tax implications (inheritance tax) that are involved in gifting money.
2. Provide evidence that the money was a gift and not a loan – When giving a gifted deposit; the lenders will need written consent – often as a letter or part of a form – confirming the money was a gift and the provider has no personal interest in the property.
3. Ensure you have the right proof of Identification – This may sound simple, but quite often photocopies of ID will not be accepted by a solicitor. This can become problematic if the person giving the gift is either overseas or unavailable.
4. Have the necessary bank statements at the ready – Part of the process involves anti-money laundering checks which includes checking bank statements from the person giving the gift and the recipient, to confirm that the money was earned legitimately.
5. Understand what a gifted deposit means for you – Most importantly, if you are the contributor of a gifted deposit, you must be aware that once you complete the process, you no longer have any rights to the money or the property.
Bear in mind that gifting an amount of money isn’t as simple as transferring a payment into a bank account. There is a gifting process that will need to be followed, and both parties should be made aware of the tax implications (inheritance tax) that are involved in gifting money.
Purchasing a new home should be an exciting time, and you should try and prevent financial issues coming between you and your family. If, however, you can’t come to an agreement together or you’re worried about the amount of money that will need to be repaid, seek legal advice and draw up a legal contract to ensure both parties agree to the terms and conditions of the loan.
Bells are a specialist Wills, Probate, Residential and Commercial Conveyancing Practice.
The office opens five days a week Monday – Friday 9am – 5pm and home and hospital appointments can be arranged where appropriate. Our professional service is right on your doorstep.