“We were only too pleased to help our son and his girlfriend purchase their first property. At that time we never imagined that within 12 months she would leave him and take 50% of what we effectively gave him. We can’t afford to help him again.”
This is a story that Holmes & Hills family law solicitors hear all too often. More and more young people are having help from parents and grandparents to help them get on the property ladder. Prices have increased in over the past decade and banks are imposing ever stricter lending requirements for a deposit of at least 10% (or 5% with Government’s Help to Buy scheme) and a potential shortage of affordable housing. Housing prices may have reduced recently but not to the extent it helps a young buyer.
It is increasingly common for family members to help fund the deposit for the purchase of a first property. According to the Council of Mortgage Lenders around 80% of first time buyers under the age of 30 are receiving some form of financial help from their parents.
If parents are providing an advance to an inheritance, there are limits as to how much you can give away. Although inheritance tax is free on gifts under a certain amount, if you die within 7 years of making such a gift, the money will be considered as part of your estate for inheritance tax purposes.
Parents and grandparents should also consider exactly who they want to help. Is the money intended to assist your daughter/ granddaughter and her partner or really just your daughter? What would you want to happen in the event that their relationship breaks down? If your daughter is buying a property in joint names with her boyfriend and that relationship breaks down shortly thereafter, are you really content that he walks away with half of the financial assistance you provided?
A new relationship and a new property should be a happy and very positive time but thinking carefully about the future and your intentions in the event of the sale of the property and the end of a relationship could prove to be a very wise move. Financial gifts of this nature can be protected. Advise the solicitor dealing with the purchase of the property that you wish to protect your monies for your family member.
If it is the intention that a family member retains that gift, then the parties purchasing the property can enter into a Declaration of Trust which confirms exactly what is to happen. For example, it can be agreed that one party has a greater share of the property than the other party by virtue of their family’s contribution; or it can be agreed that in the event of the property is sold at some point in the future, one party receives that interest back before any remaining interest is divided.
The cost of contested Court proceedings at the time of separation or the sale of the property can be very expensive and in comparison with the cost of Court proceedings, the cost of the Declaration of Trust prepared at the outset is nominal.
Even if marriage is on the cards your lawyer can take steps to protect your interest. Your son/ daughter could have a prenuptial agreement to protect those monies and retain the benefit with the family in the event of future divorce.
Lend rather than gift. An alternative is to make payment by way of a loan rather than a gift. Parents can have a suitable loan agreement drawn up which can be secured against the property. Any such loan could be interest free and the parent/ grandparent may not even really expect that it would actually be repaid but in the event of divorce or separation, your family member can be reassured that their interest is protected.
At Holmes & Hills Solicitors our Matrimonial, Probate and Conveyancing departments can assist you with regard to all of these issues. We appreciate that these discussions can be difficult but thought at an early stage can avoid heartache and unfairness at a later date. If you have any queries or concerns in relation to this area, please do not hesitate to contact our Matrimonial department. We offer an initial fixed fee consultation for the sum of £126 inclusive of VAT and this is an opportunity for you to discuss your requirements and plans and for your solicitor to give you advice on the various options available to you in more depth.