Karen Grimm, Senior Associate in our Private Client department based in our Woking office discusses the variety options available to parents when loaning children money and outlines the advantages and disadvantages to protecting your investment in the different cases below.
Many parents want to help their children get onto the property ladder. There will usually be little discussion as to how the payment towards the deposit should be treated. More often than not it is a gift or a gift with strings attached and there is nothing in writing.
You could protect your investment by putting your names on the proprietorship register or to buy the property in trust. You may however not want the complication of co-owning a property and there are capital gains and inheritance tax implications to consider.
If the money is to be a loan then under the mortgage affordability rules this must be disclosed to the mortgage lender. This could affect your child’s credit scoring and present a problem in raising a mortgage.
A co-habiting couple may like to consider entering into a living together agreement to record the basis on which they are going to co-habit, what contributions they will each make, their respective interests in the property and how your money will be treated.
You might consider setting up a formal trust agreement or loan agreement. If the money is to be an outright gift then one way of protecting a co-habiting couple’s respective interests is for them to hold the property as tenants in common and to make a declaration of trust.
If the couple are intending on getting married they may consider making a pre-nuptial agreement to reflect and record the advancement of your money and to state that it should not be shared in the event that the marriage breaks down.
Married couples have a whole range of financial obligations and responsibilities between them.
Whilst they may have stated their beneficial interests in a property by way of a declaration of trust the Court can override this depending on the financial needs of the parties and that of their children. They might consider entering into a post-nuptial agreement to record the contributions brought into the marriage.
There are legal solutions which will help to protect family money and avoid disputes.