The Rise of the “Bank of Family”
It was interesting to note and very indicative of the times that we live in, that according to recent statistics the “Bank of Family” (aka the “Bank of Mum and Dad”) currently accounts for one third of all home purchases in the UK. This will equate to approximately 318,400 transactions by the end of this year and it is estimated that the “bank” will provide funds of around £10 billion by 2025.
This obviously highlights the significant difficulties faced by young people and first-time buyers when it comes to being able to place a first foot on the property ladder. However, at a time when the government’s receipts from the payment of Inheritance Tax are on course to be a record high, it presents an opportunity for this with an Inheritance Tax issue to consider lifetime gifts to loved ones in order to reduce the value of their estate, if funds allow.
Where the offering of financial support for family members is an option for people, the decision as to how much is to be given in each case can be a difficult one. One would of course need to feel confident that the sums/assets retained after the gift is made are sufficient so as not to cause financial concerns and issues over time, but naturally this is hard to quantify without a crystal ball. In addition, it would be sensible to obtain financial advice as to where the funds will come from in order to make the gift, for example, pensions, ISAs, fixed term investments – there can be implications in each case.
There are other factors to bear in mind too, not least the potential Inheritance Tax Implications in making lifetime gifts. Many will have heard of the “seven year rule” (that if you die within seven years of making a gift, the value of that gift is added to the value of your estate for Inheritance Tax Purposes) but there are other rules in place too, in particular relating to the reservation by the giver of an interest or benefit of a property purchased using the gifted funds – so for example, if the person making the gift reserves themselves the right to occupy the property purchased or to receive a share of any rental income then essentially, from an Inheritance Tax planning point of view, the value of the gift will not fall outside his or her estate even if seven years have passed.
So, whilst the “Bank of Family” has become and seemingly will continue to be a regular source of funds in relation to home purchases, it is important when considering making a gift of this nature, to seek specialist, professional advice as to the options and potential implications. Our experienced Private Client team here at BRM can provide detailed advice in this area and other Inheritance Tax planning options.
If you would like to arrange an appointment, please contact us on 0114 3497000 or email richard.barlow@brmlaw.co.uk.
