National case highlights how the ‘bank of mum and dad’ must get it right

Caroline Shaw.

A LEGAL warning has been issued to parents helping their children onto the all-important property ladder, after a bitter family dispute hit the national headlines.

A national newspaper article recently highlighted the case of a couple who say they ‘lent’ their daughter £90,000, which helped her secure her home. However, stepmother and father did not draw up any form of contract and could not defend their claim. A court battle followed, where it was ruled the money had been ‘gifted’ and the parents had therefore lost any claim to it.

Caroline Shaw is a specialist property lawyer at the region’s largest law firm, Wilkin Chapman solicitors, and warns how this area is a ‘minefield’ and without proper advice a whole host of problems can arise.

She was speaking as a growing number of first-time buyers are using the ‘bank of mum and dad’ to purchase their first homes. Whilst parents would most probably ‘gift’ deposits to children there needs to be clarity on both sides, said Caroline.

Loan agreements or legal documents called ‘declarations of trust’ can be drawn up, which make the position clear if indeed the money is not ‘gifted’. Meanwhile, if the money is gifted, then official documentation can be drawn up declaring such.

“It is imperative that any parents understand the implications before entering into such arrangements as getting it wrong can have unforeseen legal and financial consequences.

“It is crucial that both sides understand the meaning of a gifted deposit as once the gift has been made and a declaration given that the funds are a gift, then you will no longer have any rights to either the money or the property. It is therefore imperative that you consider if an outright gift is appropriate or whether a loan or even a joint purchase of the property by yourself and your child is more suitable,” she said.

Extra complications arise if a child is co-habiting with a partner or marrying, especially if the relationship breaks down. Or it may be that a ‘gifted deposit’ has potential tax implications, added Caroline.