Bank of Mum and Dad Lending Issues

Updated: July 2025

Expert Legal Guidance on Family Loans, Gifts, and Property Ownership

The ‘Bank of Mum and Dad’ remains one of the UK’s largest sources of financial support for homebuyers. In fact, research by Legal & General and the Centre for Economics and Business Research revealed that in 2018 alone, an estimated 317,000 property purchases were made with parental financial assistance, with the average contribution around £18,000. Today, over 25% of property transactions in the UK involve help from parents or other family members.

While helping children onto the property ladder is a generous and often necessary step, it is not without legal and tax risks. How the contribution is structured—whether as a loan, a gift, or a joint investment—can have significant consequences.

Legal and Tax Considerations When Parents Lend or Gift Money for Property

If you are considering helping your child buy a home, it’s vital to seek independent legal advice to avoid potential disputes, tax liabilities, and financial loss. Below are some of the most common issues we advise clients on:

1. Income Tax on Interest-Bearing Loans

If you lend money to your child and charge interest, the interest you receive may be subject to Income Tax, and must be declared to HMRC. Parents should keep records and ensure proper documentation is in place.

2. Capital Gains Tax (CGT) on Shared Ownership

If the arrangement involves parents taking an ownership share in the property, any future profit upon sale could be subject to Capital Gains Tax, especially if the property is not your main residence.

3. Inheritance Tax (IHT) Implications of Loans and Gifts

• Gifts made outright may be exempt from Inheritance Tax if the donor survives for seven years.

• Loans, however, remain in the estate for IHT purposes until repaid—potentially increasing your estate’s IHT exposure.

• If the loan is later forgiven or goes unpaid, it could be treated as a gift, triggering further tax considerations.

4. Mortgage Lender Priority and Repayment Risks

When a mortgage lender is involved, any private loan from parents will typically be subordinate to the bank’s loan. This means that if the property is repossessed and sold at a loss, the parental loan may not be repaid.

5. Relationship Breakdown Risks

If the property is bought jointly by a couple using parental funds, and the couple later separate or divorce, there is a risk that the parental contribution may be lost or disputed, particularly if there is no formal loan agreement in place.

6. Lack of Documentation Can Lead to Legal Disputes

Perhaps the most common issue arises where no formal agreement exists to clarify whether the parental contribution was intended as a loan, gift, or investment. In the absence of written terms, courts may infer an intention that could lead to costly family disputes or unexpected legal outcomes.

How Our Solicitors Can Help

At Willett & Co Solicitors, we specialise in advising families on the legal structuring of financial support for property purchases. Our services include:

• Drafting loan agreements and declarations of trust

• Advising on gift vs loan implications

• Protecting parental contributions during relationship breakdowns

• Minimising Inheritance Tax and Capital Gains Tax risks

• Liaising with mortgage lenders and conveyancers

Protect Your Family’s Investment with Legal Advice

Before lending or gifting money for a house deposit, speak to a solicitor to ensure your interests—and your child’s—are protected.

📞 Contact our Private Client or Property Law team today for tailored advice on Bank of Mum and Dad arrangements, family loans, and property co-ownership.