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Advice  |   15 February 2021

Written by
Mitchell Thompson, Partner

The pandemic, which has blighted the UK for the last year, appears to have created a desire for many children to leave the family home. Understandably having one’s own space at a time of lockdown becomes hugely desirable, but many children have to rely on the generosity of their parents to get them started. It is important for parents to consider the best way to pass over money.

Gift or Loan?

Money can be given by way of a loan or a gift. A loan should be recorded in a formal agreement, setting out the terms for repayment, interest etc. A Deed of Gift confirms beyond doubt to any enquirer (e.g. HMRC) that the money has passed from parent to child.

Inheritance Tax

Parents also should be aware of Inheritance Tax (IHT) implications on passing money to children. If a loan, then the loan value outstanding at death will be an asset of the parent’s estate and assessable for IHT. If a gift, and made in the 7 years before death, the gift aggregates with the rest of the parent’s estate and could be subject to IHT.

Ownership of Property

Often a concern of parents is that if they gift money to their child to help buy a property, how is that gift secured for their child’s benefit when they are buying with another person. A Declaration of Trust can be used to set out the ownership of the property and how the proceeds of sale should be divided on sale.

Pre and post nuptial agreements provide some protection and will be taken into consideration by Courts in divorce proceedings.

Where a child is purchasing a property and a partner is moving in but only contributing to outgoings; a cohabitation agreement can set out the terms of the occupation and can protect financial investment in a property.

Protecting your children’s inheritance

How to protect the family wealth is also a common concern. Ensuring your wills are regularly reviewed is a good first step. A Discretionary Trust can help provide protection from a claim e.g. on divorce. In a Discretionary Trust, no beneficiary listed has an automatic right to benefit from it (it is at the discretion of the trustees). If one of the beneficiaries was to become divorced in the future, their spouse would have difficulty claiming that the beneficiary is absolutely entitled to assets from the trust and that it should form part of a divorce settlement.

It is usual when setting up a trust to write a non-binding letter of wishes to the trustees. This letter sets out your reasons for setting up the trust and who is intended to benefit. It can ask the trustees to consider the children’s circumstances (such as whether a divorce is likely) before distributing anything to them.

Which option is best is dependent on a number of factors. To avoid disputes and to protect monies given to children it is important to seek professional advice from the outset.

If you would like more advice on the matter please contact Louise Toye or Mitchell Thompson on 020 8290 0440 or email or

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