Legal & General also discovered that this assistance was also extended to many aged 35 and over – an amount of £2.14bn being borrowed for this purpose.

And there is no doubt that these amounts have increased over the last 2 years with the pandemic.

Clearly this has been of immense benefit to many who would not have ordinarily been able to purchase a property.

Parents help by:

• acting as a guarantor
• providing cash for a deposit on a home
• purchasing a property

When it comes to money transactions it is always a good idea to have things in writing, especially between family members, as these things can become unnecessarily complicated and painful if things aren’t made clear.

Gift or Loan

If the money is gifted, that is one thing. However, giving a gift with the implication that it is a loan to be repaid is another. It is best to state in writing what seems to be obvious, rather than leave things up to interpretation.

When drawing up a loan agreement we recommend including the following:

• When the loan needs to be repaid
• What happens if either party dies
• The interest rate
• Whether the loan can be repaid early or not
• Plan of action if the recipient defaults on their mortgage

“Hard” or “Soft” Loan

In the family court, even once it has been established as a loan, the “hardness” or “softness” of the loan also comes into it. This can a be tricky to ascertain as there are many deciding factors.

It may be decided that the obligation is a ‘hard’ loan if:

• It is to a finance company
• The terms have the feel of a normal commercial arrangement
• It arose out of a written document
• There is a written demand for payment or threat of litigation
• Enforcement was not delayed
• It is an amount that the creditor is not likely to waive

On the other hand, the obligation may be treated as a ‘soft’ loan if:

• It is with a friend or family member with whom the debtor remains on good terms
• It arose informally, and the terms do not have the feel of a normal commercial arrangement
• There has been no written demand for payment
• Enforcement has been delayed
• It is an amount that the creditor is likely to waive

Once again, whether loan or gift, it is highly recommended to have everything agreed upon in writing. Evidence of a loan shown by a “proof of deposit” is not enough and will most times be interpreted as a gift.

This is especially important in protecting family funds in the event of a child’s marriage being dissolved.

In a divorce

Deciding whether financial contributions are returned to the parents, retained by the person related to them or shared between the divorcing couple depends on the following:

• How the financial assistance was provided
• Whether any formal, legal agreement was drawn up
• The spouse’s needs
• Whether the money was gifted or inherited

However, the BoMaD can safeguard themselves.

One way is for a Declaration of Trust to be drawn up which names the parents and is in favour of the provider of the money, ensuring that the funds would be returned.

Also, if there are enough funds available for both divorcing parties’ needs to be met without using the money provided by the parents, the argument will be stronger for the funds to be “returned to sender”.

Whatever your situation may be, it is always recommended to seek legal advice to ensure protection of financial assistance to a child/grandchild when they are married.

The post The Bank of Mum and Dad – the ins and outs appeared first on Ludlow Lane.

Inheritance tax is one of those dreaded and despised types of tax. Like someone having hacked a great big chunk out of your wedding cake before you get to cut it.

It can feel unfair. After all, you have paid tax on this money already. Why should you pay again?

Let’s say you’re getting on in years and have saved up a handsome sum of money. With the rise in rent and property prices, you plan to gift this to your grandchildren to give them a little headstart on life.

Will this be taxed?

Well, let’s first answer the question – What is inheritance tax?

What is inheritance tax?

Inheritance tax is a tax on the estate of someone who has died. The estate is all property, belongings and money.

When is inheritance tax not payable?

Inheritance tax is not payable if:

• The value of the estate is below the nil rate band threshold of £325,000
• Everything above that amount is left to a spouse/civil partner/charity/community club

If the value of the estate is more than £325,000 the amount over that could be taxed at the rate of 40%.

However, this can be reduced to 36% if you donate 10% of the estate to charity.

Gifting

When it comes to passing on your home, the tax differs depending on who you give it to.

• If you leave it to your spouse or civil partner when you die, no inheritance tax is payable
• If left to someone else in your will it will count towards the value of the estate
• If left to your children or grandchildren, that nil rate band increases to £500,000. This includes stepchildren, adopted and foster children but not nieces, nephews or siblings

While you are still alive and kicking you can also take advantage of the tax free amount of £3,000 you are allowed to gift per tax year. You are also permitted to carry this over once if you don’t gift one year.

There is also an amount of £250 you can gift to those that have not been beneficiaries of the annual gift allowance. This amount can be gifted an unlimited amount of times so even though it’s a small amount you could whittle away at things pretty quickly this way.

If the wedding bells are ringing for family or friends, this is also an opportunity to gift away those savings. This can be up to £5,000 for children, £2,500 for grandchildren and £1,000 for anyone else.

However, if you die within seven years of making any of these gifts they will be added to your estate. And if the estate then exceeds the nil band rate amount then you may be liable for inheritance tax.

There is such a thing called taper relief though, which means that the percentage of tax charged reduces the longer you survive into that seven year period.

For more detailed information on this and other tips to make sure your assets are put to the best use possible, you will find the links at the end of this article helpful.

The post Will My Gifted Savings Be Taxed? appeared first on Ludlow Lane.