A staggering 3.6 million UK adults borrowed money from friends or family in the last twelve months, according to the Financial Conduct Authority’s latest Financial Lives Survey.
One of the UK’s largest lenders and financers, The Bank of Mum and Dad (BOMAD), is desperately in need of financial guidance and advice, according to research recently carried out by the independent equity release company ‘Key’. A nationwide survey found that over three quarters of parents aged 55 and over found the gifting rules complicated with nearly a quarter doubting whether they had the financial knowledge to make the right decisions.
According to industry estimates, more than one in four house sales in the UK is supported by BOMAD, and the research has indicated that over-55s in particular are looking for more guidance in this area. Nearly 80% of customers surveyed said they would like to have tax incentives for gifting to their children when important milestones are reached or when university fees are needed.
With nearly half of 18-40 year olds currently renting, the younger generation have concerns too, as they worry about how financially savvy their parents are and whether their parents are receiving the correct advice in order to make the right financial decisions as BOMAD.
Key’s Chief Product Officer, Dean Mirfin, says: “Collectively, BOMAD is a major UK financial institution but one that needs advice and guidance so that parents feel empowered to make the right financial decisions for themselves and for the next generations.”
According to estimates, the UK’s older homeowners are sitting on as much as £1 trillion in housing wealth. and Mr Mirfin says the group is also likely to have generated significant pension wealth. He said: “The challenge for parents wishing to lend or gift money is to decide which assets are the most appropriate and most tax-efficient for gifting. We believe advice is key.”
Mr Mirfin’s Top Tips for Parents who wish to loan to or gift money to their children or grandchildren are:
- Firstly, make sure you talk; money can be an awkward subject. Talk about exactly what is fair and what you can afford. It is important to make it known what should be regarded as a ‘gift’ and what is just a ‘loan’. A misunderstanding could result in some tricky conversations.
- Always seek professional independent legal advice. It will give you peace of mind that you are making the right decisions about your money.
- Make sure everyone knows exactly who is going to benefit, i.e, spouses. Family can be complicated so it’s important to be transparent from the start about who is getting what, especially when it is a joint house purchase.
- It can be worthwhile drawing up a contract or agreement if you are giving all, or even part, of the money on a short-term basis. No matter how lenient you might feel about this, and even though it is family, it is always worthwhile having something in writing. Don’t be afraid to stipulate in writing what you want the money to be spent on; you are entitled to ask this when you are lending your own money.
- Be aware of tax! You can gift money to your children without being taxed straight away (or at all, in some cases) but if you should die within seven years of a transaction taking place your estate could be liable for tax.
- Finally, think very carefully about whether you can really afford to gift money to family members. Consider your own financial future and retirement and, if in doubt, seek advice from a professional adviser.
The price comparison website Moneysupermarket.com suggests that children cost, on average, between £79,000 and £109,000 up to the age of 18, after which most of us will heave an enormous sigh of relief with the prospect of finally beginning to put some money away to fund our impending retirement. Make sure you get financial advice before investing your pension capital into supporting your adult children.
Always ensure you make a sound investment when you purchase property through BOMAD. Your local Royal Institution of Chartered Surveyors registered Chartered Surveyor will provide you with an independent home survey, building survey or property valuation in England or Wales.