Did you see us in the Times on April 1st? We were helping to answer your questions on the tax and other implications of helping your children to buy. Here’s our bit of the article…
How can I protect my contribution?
When helping a child to buy a first home with their partner, many parents want to protect their contribution against a breakdown of the relationship. David Hollingworth, the associate director at London & Country, a mortgage broker, says one benefit of family mortgages is that any cash that parents hand over to help their children remains in the parents’ names, so it is not at risk if your child splits up with their other half.
Another way to ensure that cash you hand over remains in the family is to set up a trust. Craig Palfrey, a certified financial planner at Penguin Wealth, says: “Instead of the parent handing money to the child, the parent places the money into a trust for the benefit of the child. The trust loans the money to the child to be used to purchase the property.”
Ensure that any use of the trust is subject to provisions and includes a clause that states what happens in the event of separation or divorce.
“Trusts are perceived as exotic tax-planning devices for the rich. In reality, trusts are available to everyone. They are normally simple to put in place and are a cost-effective solution. What is important is to communicate that they are mostly about bloodline protection, not tax savings,” he says.