Bank of Mum & Dad (Property Deposits for Children)

The Bank of Mum and Dad

With the cost of property continually increasing, it is hard for the youngsters today to save sufficiently for that 10%-15% deposit that will allow them to get on the property ladder.

Inevitably, this leads to children turning to mum and dad or grandparents for help, typically asking for a loan or a gift of the deposit sufficient to allow them to afford the monthly mortgage payments.

Most of the time, Mum and Dad will give the child the deposit, let us say £40000. As soon as that deposit is given to the child, there is no protection over that £40000 and the likelihood of mum and dad seeing that money again is pretty slim, especially if the child goes through a divorce or splits up and the property is sold. Is there a better way?

Yes, there is.

If mum and dad had put that money into a Gift Trust and made the child the beneficiary, the child could have loaned himself the £40000 from the trust, which would have kept the funds outside his of his estate and thus wouldn't be attachable from divorce, creditor claims, or even care fees.

But at the same time, the gift trust could take a charge over the new property for the £40000 to ensure when the property is sold, and the £40000 would come back to the gift trust where the child could again use the same money to purchase another property.

The advantages to mum and dad are that they have protected the funds they worked so hard for, and as long as they have had no benefit from the £40000 after 7 years, it would be outside their estate for inheritance tax purposes. A win, win for mum and dad.