How Bank of Mum and Dad can leave children facing a hefty tax bill

THE Bank of Mum and Dad has been a vital source of financial help for thousands of Scots trying to get on the property ladder.

However, legal experts warn that growing numbers of generous parents are in danger of landing their children with a hefty tax bill.

A boom in t he housing market means prices are ri sing and young home-buyers are in desperate need of cash from their families to be able to afford deposits.

But cash gifts could leave the recipients with a large bill because of inheritance tax, which is payable for up to seven years after the money changes hands.

Law firm Lindsays has seen a rise in the number of cases it is dealing with where people risk being stung with an unexpected inheritance tax bill because they and their parents were unaware of the implications of what they thought was a gift.

Paying for a holiday or a car, or even giving a precious family item can also leave the recipient with an unwanted tax bill.

Inheritance tax is payable if the person who made the gift dies within seven years of making it. Cases come at a time when grown-up children – part of the so-called Generation Rent – have never needed more help from their parents to support them with significant purchases.

Figures from Legal & General show one in every two first-time home-buyers in the UK aged under 35 is receiving financial support from the Bank of Mum and Dad.

And 56 per cent of those under the age of 35 received a financial gift to help them step onto the housing ladder.

A third of people surveyed said they expected help from their parents to buy a house over the next five years.

Grant Johnson, head of private client business at Lindsays, said: ‘ The problems of Generation Rent are well

‘Aware of implications’

known. On one hand, high house prices have driven up the deposits that first-time buyers need to save.

‘On the other hand, rising rents have made it harder for would-be homeowners to save anything at all.

‘But although the Bank of Mum and Dad feels like the right solution all-round, you need to be aware of potential inheritance tax implications.

‘It’s not just help with buying a home which carries risk. HMRC says a gift can be anything which has value.

‘Inheritance tax rules are complicated – even the Government has said they should be simpler and fairer.

‘But it is still possible for help to be given, so long as people seek expert advice before they make their gift.’