Parents - Know Your Options In Helping Your Children Onto The Property Ladder

Finding a way onto the property ladder remains a difficult feat to achieve. For young people, raising the funds for their first deposit can often be quite a challenge.

In many instances, parents step in to help their children purchase their first property, deeming their financial contribution to be part of their future inheritance anyway. While this is of course a hugely positive way to help provide for your children’s future, it is important you as parents take the correct legal steps to protect yourselves and your money particularly where your child is purchasing with a partner – while also being as tax efficient as possible. Broadly, there are three options you could consider: Loan Agreement and Legal Charge you could provide a loan, either with interest or interestfree, to your child and set the repayment terms as you wish. You can secure the loan by way of Legal Charge over the property, so that if the property is ever sold, your outstanding loan monies would be returned before any remaining balance is paid to your child. This means that your financial contribution would be protected in the event of your child separating from their partner, or if they died or were made bankrupt. Declaration of Trust a document would be prepared declaring the amount of equity you have in the property, again meaning that your financial contribution would be protected in the event of your child separating from their partner, or if they died or were made bankrupt. Flexible Discretionary Trust funds for the purchase price would be transferred into a Trust, and the trustees would then purchase the property, or else lend your child the money so their name is on the title deeds. If you wished, you could make provision for repayments on the money, which would be paid into the Trust. Similarly, the monies in the Trust would be protected from divorce, bankruptcy or death of your children, and would remain within the family. The establishment of a Trust is proving an increasingly popular option for parents when purchasing for their children one main advantage being that, provided you outlive the creation of the Trust by seven years, the monies in it will be outside of your Estate. However, if you feel you may need access to the money you have committed to the property at some point in the future, it could be that a loan is a better option. In addition, the new Stamp Duty (SDLT) rules on second properties mean that care must be taken on setting up a Declaration of Trust or a Flexible Discretionary Trust and specialist advice must be sought before making a decision. Which option you choose is of course at the discretion of you and your circumstances, and a good private client lawyer or financial specialist will be able to help you make that decision.