The Dilemma: Gift or Loan?
A common question from parents supporting adult children onto the property ladder is whether to provide the funds as an outright gift or a formal loan. When family money, property, inheritance tax, and relationships intersect, the answer is rarely simple:
- The Risk of an Outright Gift: A gift is clean and straightforward, but it relinquishes control. If your child buys with a partner and the relationship subsequently breaks down or the home is sold, family capital can easily become part of an asset partly owned by someone outside the bloodline.
- The Challenge of an Informal Loan: A loan retains control, but only if it is properly documented and legally binding. Without formal structure, families often find themselves years later trying to reconstruct what everyone originally intended.
A Smarter Route: The Protective Gifting Trust (PGT)
Within our Entrepreneur & Executive Estate & Succession Planâ„¢, there is a far more effective mechanism for navigating this scenario:
- Step 1 (Direct Loan): Parents lend the funds (in this case, £100,000) directly to their child, creating a formal loan agreement or IOU.
- Step 2 (Assignment into Trust): The loan agreement is then formally assigned into a Protective Gifting Trust (PGT).
- The Result: The child no longer owes the money to mum and dad personally; they owe it back to the family trust.
This structure ensures the capital does not simply disappear into the purchase. It remains an active part of a protected family arrangement, aligning immediate support with long-term intergenerational estate planning.
Legal Safeguards from Day One
When a child buys a home alongside an unmarried partner, the conveyancing solicitor should always be instructed to draft both a Declaration of Trust and a Cohabitation Agreement.
Establishing clarity from the outset is not about assuming a relationship will fail—it is about removing ambiguity before money is committed:
- Who contributed what toward the deposit and purchase costs?
- Who owns what exact percentage of the equity?
- What happens if the property is sold?
- What happens if the relationship ends?
- Should the initial capital contribution simply be repaid first, or should it share proportionally in any future property growth?
Answering these questions before completion is straightforward; trying to resolve them five or ten years later during a dispute is invariably painful and expensive.
The Bigger Picture in Family Wealth
When helping children buy a home, the question is never just whether to give or lend. The real objective is understanding how to support them today, protect their future, preserve the family’s capital, and ensure the wider estate plan remains joined up.
Family wealth is rarely just about numbers on a balance sheet—it is about people, relationships, and safeguarding long-term intentions.
If you would like to explore how an Estate & Succession Planâ„¢ can protect your family capital, contact our private office to arrange a consultation, or request a complimentary copy of the opening estate planning chapters from Bulletproof Retirement.
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