First Time Buyers – A loan from the bank of Mum & Dad?

Protecting capital when assisting a child to purchase their first home

In a difficult time for first time buyers the “bank of Mum & Dad” can be of huge assistance for children when faced with deposits and other expenses when getting those first steps on the property ladder.

One of the biggest concerns of parents investing money in their child’s first home will be protecting the capital from any third party such as a boyfriend, girlfriend, spouse or cohabitee.

Protection for the capital can take a number of forms and where parents require the money back at some point in the future a loan or a share in a property supported by a declaration of trust may be most suitable.

However, if protecting the capital from a third party is the only reason the money has not been gifted an alternative form of protection known as an Assisted Purchase Property Trust may be more appropriate.

Assisted Purchase Property Trusts can act as an Inheritance Tax planning measure for the person setting them up and in addition mean that the settlor does not own part of the property when considering SDLT surcharges (relevant where the value of the interest exceeds £40,000).

Should I consider an Assisted Purchase Property Trust?

You should consider setting up an Assisted Purchase Property Trust in the following circumstances:

• You could afford to gift the money but you want to protect it from a 3rd party
• You are lending in excess of £40,000
• You have an estate above the Nil Rate Band for Inheritance Tax (currently £325,000 for an individual) and have not made CLTs in excess of this in the last 7 years.
• You have an estate worth over £2,000,000 and you are concerned about the loss of relief Taper on the incoming (from April) Residence Nil Rate Band

If you already have a different form of agreement in place and would like to review this it may be possible for you to settle your current loan or share on to a trust as an Inheritance Tax planning measure.