3 Top Tips For Bank Of Mum And Dad UseIf you decide to be the bank of Mum and Dad for your child’s first home purchase or to use the bank of Mum and Dad to buy your own place, make sure you decide how this is done and think of any implications first.
- As a Gift If you decide to gift the money to your child, it’s important to be aware that there will be inheritance tax to pay on this amount if you die within 7 years of making the gift, and that you and your child understand this. Also, you need to decide on the details of the gift, for example, is it purely for your child or is it for your child and partner? And if it’s for both, what happens if their relationship breaks down?
- As a Loan If you decide to loan the money to your child, put an agreement in place beforehand to avoid any confusion and prevent any heartache at a later date. With a formal agreement, everyone knows what the terms of the loan are, including if any interest is to be paid and how/when the loan is to be repaid, from the start. It’s also important to consider different scenarios and make allowances for these within the agreement, for example, what happens if you need to ask for the money back at any point? This may be because your spouse dies and you need the money or you simply want it back so you can help your other children with their first property purchase.
- As a Gift or a Loan However you decide to help your child, make sure you consider the implications on your own financial planning and tax status first. Furthermore, you need to declare the gift or loan to the mortgage company straightaway and make sure they’re happy with the bank of Mum and Dad providing the funds.