Whether it’s a helping hand onto the property ladder, acquiring a new family home or rental property, financial support from parents has become one of the biggest financial supports in the UK. Dubbed ‘the bank of mum and dad’, more people are acquiring property through means kindly supported by their parents.
But things are not as straightforward as simply borrowing thousands of pounds from generous parents as things can get tricky and what starts as an act of generosity can quickly become a legal headache if the arrangement is not properly recorded.
Gift, Loan or Interest?
When parents provide money to help acquire a property, the key question is whether the money is a gift, a loan or if the ‘givers’ intend to have any interest in the property by virtue of the money they have provided to the receivers.
If it’s a gift, there’s no expectation of repayment. If it’s a loan it should be treated like any other financial agreement as a loan is repayable. In more complicated situations, if there is an agreement that a certain interest may be acquired in the property, this should be legally recorded so that the various interests in the property are clearly outlined and expressly understood.
Without clear documentation, disputes can arise later where one party entirely denies that the contribution was a gift or a paying parent wants their money back if there is a separation and wants to be repaid from any net sale proceeds.
In family law cases, we often see these arguments surface and what was understood to be a loan, could be considered a generous gift with no prospect of repayment.
Certainty
To avoid uncertainty or a future family argument, it’s important to:
· Put it in writing. Either by way of a loan agreement or a Declaration of trust prepared with the aid of legal advice and executed as a Deed as that all concerned understand what they have been doing and independently advised.
· Be clear with both the mortgage lender and your conveyancers about how the property is held on acquisition or later on if there is a new development. This can be recorded in the formal documents when the property is purchased.
The takeaway
Financial help from family can be an incredible springboard, but without proper protection it can cause lasting and financially painful implications. If you or your parents are considering contributing toward a property, get the terms agreed and recorded from the outset. Although it may seem formal, it’s the best way to protect relationships, promotes certainty and avoids costly disputes in the future .
If you’d like tailored advice about a parental contribution, our family team at McAlister Family Law can help ensure everything is clear and future-proof. Contact us at [email protected]
