insideKENT Magazine Issue 26 - May 2014 | Page 153
LAW
THE BANK OF
MUM AND DAD
If they are in a position to do so, most
parents want to help their children get on
the property ladder. But it is not as straight
forward as it appears, and can often be
fraught with pitfalls. Here, Simon Leney,
partner at Cripps Harries Hall, answers
some commonly asked questions.
Simon Leney
My son is now 30 and wants to stop paying rent and get on the property
ladder. What should I advise him to do about his finances?
What he can afford to pay drives where and what he can buy. Remember
that it’s not just a question of raising the cash to buy; what he buys will
have running and maintenance costs. And if he borrows, the cost of
repayments has to be factored in.
My son has seen the perfect place but I also want to help his younger
brother and sister, so I can’t give him all the cash needed. If he gets
a mortgage from his bank, can I help with the rest?
This is much trickier. Lenders generally want confirmation that any balance
of funding is from the borrower and no one else. In the past, something
could be done using parental guarantees, but lenders are less keen on
them now. It’s not a problem if you can give your son the cash outright, but
if you give it as a loan (or set up a trust), that is a debt to be declared as
part of the mortgage application. With some lenders that will be unacceptable.
With others it may not be, with some assurances.
I would like to help with the finances. What are the options?
If you have enough cash to cover the whole price, it will be easier than if
he still has to borrow some from a commercial lender. You could just lend
the money to your son, with or without interest – but if he does pay you
interest, you will have to declare it for income tax, or you could give the
money to your son outright, which is better.
I think we need some unbiased help. Where can we go?
A solicitor with expertise in this field – who would normally be described
as a 'private client' solicitor – can help point you in the right direction. They
will also be able to help find you a good independent mortgage adviser,
but solicitors are subject to strict rules about conflicts of interest and should
not act for all of you when it comes to putting arrangements into effect. Do
remember that so-called advisers working for a bank or other lending
business are paid to promote their employers’ products, so an independent
mortgage adviser should give your son the best range of options.
If you gift the money, it will remain part of your estate for inheritance tax for
seven years, but if it is a loan, the amount outstanding at death will be part
of the assets in your estate. This could be awkward if your son isn’t the
only beneficiary of your estate. Alternatively, you could give him some and
lend him some, but the problem with this is that you will have used up
some or all of the inheritance tax allowance, which will increase the tax on
the rest of your estate. You may need to make changes to your will to
ensure that the overall effect achieves fair treatment for all of your heirs.
Here, sometimes life assurance can be used to even things up.
If you would like any advice, please contact Simon Leney, partner at
Cripps Harries Hall, on 0845 467 4690 or [email protected].
I can afford to give my son the cash he needs, but he is in a rocky
marriage and I am worried that some of the money will be lost if they
divorce. I want the money to stay in the family.
About Cripps Harries Hall
It’s a sensible concern, and making your son richer doesn’t help with longterm inheritance tax planning either. I would suggest you set up a family
trust structure, which doesn’t give your son rights to the capital. The trust
can lend the money to him (interest-free or interest-bearing depending on
ability to pay), and although setting up a trust might add a cost (maybe
£1,500 plus VAT), if no interest is payable, the running costs would be
minimal. Divorce courts can (and do) look through trust structures if one
of the divorcing parties is a potential beneficiary, so it’s not a straightforward
option.
Cripps Harries Hall, the leading
solicitors in Kent, recently merged
with Vertex Law and now has office 0