It is estimated that one in four property transactions will involve a contribution (loans and gifts) from the Bank of Mum and Dad. There are various ways in which that help can be given, for example:

• Gift or loan of some or all of the deposit
• Gift or loan of full purchase price
• Act as guarantor
• Loans and gifts of some or all of the deposit

If you are considering making a gift you should first seek advice on the tax implications of doing so. Your gift may have consequences in respect of inheritance tax (IHT) in particular as gifts made within seven years of death count towards the value of an estate for IHT purposes.

If the purchaser is getting a mortgage then any gift needs to be disclosed to the lender and they are likely to require the person making the gift to sign a declaration confirming that it is indeed a gift and not a loan.

Therefore where a mortgage is involved you are unlikely to be able to provide a contribution towards the deposit by way of a loan. However, where there is no mortgage involved, you would be able to do so.

Gift or loan of full purchase price

An outright gift of a substantial asset such as a property has significant consequences and should be considered carefully. If you lend, say, £150,000 to your son or daughter to purchase a flat and title is taken in his or her sole name with no security then legally the property belongs to the child and he or she is free to do what they want with it (including selling it and spending the proceeds on a Ferrari, a fortnight gambling in Las Vegas or anything else that takes their fancy)!

Furthermore, if the child later gets into financial difficulty the flat would be an asset that creditors could try to use to recover unpaid debts and if the child later married the flat forms part of the assets that would need to be divided in the event of a subsequent divorce.

Again, you should consider the tax implications if you are thinking of gifting the entire purchase price. If you decide to make a loan available rather than a gift consideration needs to be given to the terms of the loan and the circumstances under which repayment can be sought.

You may also want to consider whether a share of the title to the property should be taken in your name. That would provide added control over the property but would have additional tax implications for you, including a likely uplift in the amount of land and buildings transaction tax (formerly stamp duty) payable on the purchase of the property and possible capital gains tax implications.

Act as guarantor

Another option would be to act as a guarantor on your child's mortgage which may allow them to borrow more money. Should your child default on the mortgage repayments then the bank or building society could seek to recover these sums from you so do not agree to this unless you can afford to make those payments if necessary!

For information or advice on loans and gifts, protecting your investment or any other aspect of our blog, please contact our experienced team.