A Foot On The Ladder With The Bank Of Grandma And Grandad

A recent poll has revealed that over a third of grandparents are contributing to their grandchildren's housing deposits through gains made on their own properties, as prices in major cities such as London continue to soar.

With more grandparents wishing to use these gains to help family members get a foot on the property ladder, Verity Kirby, private client partner at law firm Shakespeare Martineau, has shared with us some advice and information on what, when and how gifts can be left... 

The two main routes of gifting cash or assets would be either through a lifetime gift, in which assets are gifted while the relative is still living, or through a will on the death of a relative.  

Lifetime gifts can be a good option for tax planning purposes, however, there are considerations to be taken, as avoiding tax on gifts is all about timing. Whether it be property or cash, if the gift is made more than seven years prior to death, it will no longer be considered part of the estate, meaning it is therefore exempt from inheritance tax. 

When leaving lifetime gifts, it is essential to consider whether the gift is financially viable. For example, thought should be given to whether the money will be needed in the near future, for example, should assisted living or care services become necessary. It is therefore prudent to consider whether sufficient funds will be left after the gift has been given to ensure scenarios such as this can be met comfortably, and that the giver is protected from any financial burdens that may lie ahead. 

It pays to be careful when gifting large sums of money or assets. Should care or assistance be needed, local authorities may consider previously given gifts as ‘deprivation of assets’; a criminal offence in which an individual intentionally reduces their assets to avoid the value being used to pay for care later in life. If it is found that assets were purposefully distributed to avoid these later life care payments, they can still be used in an evaluation despite the person no longer being in possession of them. 

When gifting assets through a will, whether cash for a deposit or a physical property, there is less control over how the gift will be used. Whilst written wishes can be included in a will, there is no guarantee that the beneficiaries will use the gifts as intended, if the gift is made outright to the individual.  Alternatively, cash gifts can be left in trusts until set ages, 18 and 21 being the most common choices, however as young people are now taking longer to settle down and move out, trust funds set until the age of 30 are becoming more popular. Although this still doesn’t guarantee money will be used for a deposit, chosen Trustees are often put in place who can ensure that the intended recipient utilises the funds as the deceased would have hoped, as the deceased would normally have left guidance as to what the Trustees can use the money for the beneficiary – such as for educational purposes or indeed a house deposit. A grandparent may also consider establishing a lifetime trust with a similar aim, which would start the “clock” for lifetime gifting as described above. However, careful consideration must be taken in respect of lifetime gifts into trust, so that they do not trigger inheritance tax where possible. 

It is essential for grandparents to have wills prepared for the distribution of assets. Without one, the most likely candidates for receiving assets will be the individual's children or closest living relatives, and without written instructions, it is likely the gifts will not be distributed as intended. Complications also arise when fairness is questioned. Some relatives may need or expect more money than others which could lead to disputes and disappointment.  

If grandparents are in the financial position to do so, gifting money to their grandchildren to contribute towards a deposit on a house can be a wonderful thing, however, it must always be done with careful consideration. Seeking professional advice from a personal wealth expert is the best way to gain guidance in how and when to best gift assets without breaching the legalities of asset planning. Through both wills and lifetime gifts, more and more grandparents are able to offer the all-important funding to help their grandchildren get a foot on the property ladder, an increasingly difficult task without this valuable help. 

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