The so called Bank of Mum and Dad or BOMAD will help out their children to the tune of some £6.5 billion this year with the South West of England and London seeing the largest parental contributions.
Millennials are the biggest recipients with 79% of the funds going to persons under 30 and most of the money is used to help their children to get on the property ladder as first time buyers. This means that parents are involved in some 25% of UK property transactions
The unique feature of BOMAD is that business tends to be conducted through the heart and not the head. As a solicitor who specialises in claims involving private individuals my colleagues and I are beginning to see more mums, dads and children whose well intentioned arrangements have come unstuck usually as a result of divorce, separation or death.
The amount of money involved (on average £30,000 in the South West) ought to take these payments outside of the scope of casual family arrangements. In my view it would be prudent for BOMAD (and often for the children also) to take legal advice before any money changes hands.
These are some of the key questions that should be answered before you proceed:
- Is the payment a loan or a gift?
- If a loan what are the terms of repayment?
- Is the money being advanced only to your child or also to their spouse / partner and if so in equal shares?
- Do you expect to be repaid should your child separate or divorce?
- What are the tax consequences of the payment both during your lifetime and upon your death?
- Are you happy for the money to be used for other purposes such as paying for a “gap year” if your child decides to take a career break and sell up?
- Do you wish to adjust the provision in your Will to take into account a lifetime gift?
- Should you hold a share in the new property or take security over it?
The BOMAD trend is set to continue particularly in the South West. If you require advice to help find the right answer or if you have already run into difficulty then please do get in touch.