THE LOWDOWN... ON THE BANK OF MUM AND DAD

TRICIA PHILLIPS

The Bank of Mum and Dad is expected to lend more than £6.5billion this year to help children get a foot on the property ladder. But what may seem like a simple financial helping hand for your children comes with big risks. Insurer Royal London has produced a guide for parents highlighting the potential pitfalls:

TAXATION

If you’re named on the deeds of a property purchased with your child you could be liable for higher rate stamp duty, which applies when buying a second home.

You could receive a capital gains tax bill if the property is sold at a profit later.

Gifts towards a deposit can count towards your estate for inheritance tax purposes if you die within seven years of giving the money.

HOUSE PRICES

The housing market is booming with properties at top whack prices. If the property needs to be sold after a crash you could end up in negative equity and may not get your money back when expected – or never.

HARDSHIP

The amount handed over may seem affordable but redundancy, ill-health or simply the rising cost of living could leave you short of cash later on.

What may seem like affordable repayments on a loan initially could become unmanageable for your child if they lost their job or became ill.

RELATIONSHIPS

Think about what would happen if your child is buying with a partner and that relationship breaks down and there’s a dispute over how much of the home is owned by each party.

AGREEMENTS

Don’t risk later heartache or a family rift. Set out clearly whether the financial help is a gift, or a loan to be repaid. It may seem overly formal to have an agreement between you and your child but everyone needs to know what is expected of them. So set out a repayment timescale if it is a loan.