If you’re considering giving your child a helping hand to buy their first home, you’re not alone.

Figures show that 45% of twentysomethings who purchased a property last year did so with a cash boost from the Bank of Mum and Dad (Bomad).*

But just because something is common practice doesn’t mean it’s risk-free.

So, before you transfer any funds, it’s worth heeding the warning issued earlier this month by a law firm.

Is it a gift or a loan?

Coventry-based Brindley Twist Tafft & James revealed that it is seeing more and more disputes where parents are trying to claw back Bomad funds.

The problem often occurs if parents have handed money to their child to buy a home with his or her spouse.

If, after a few years, the relationship breaks down, things can get messy when the matrimonial assets are divided.

Generally (and we advise you to seek your own legal advice), gifts tend to be divided equally in a divorce.

Hence, the soon-to-be-ex-spouse argues the funds were a gift and they don’t need to pay back half of the Bomad funds.

Meanwhile, the parents claim the funds were a loan and should be repaid.

Top tip

The courts tend to err in favour of funds being a gift – unless there is documentation to prove otherwise.

So, whatever you as a parent think is morally right in the situation is a moot point.

An informal agreement made in goodwill over a Sunday lunch in happier times won’t necessarily hold much sway in court.

If you’re loaning your child funds and expect them to be repaid at some time in the future, it’s worth getting legal advice first and getting the agreement down in writing. (You may also wish to discuss with your lawyer drawing up a ‘deed of trust’.)

These things can be awkward to discuss, especially if your child’s relationship appears to be in a healthy place. But it’s wise to address the subject – albeit diplomatically.

That way, you can help your child out but do so from an informed position.

Hopefully, you’ll never find yourself caught up in a dispute, but it pays to look ahead.

If you’d like more homebuying advice, get in touch with us today.

*Institute of Fiscal Studies

This article does not constitute legal advice. Always consult a professional for guidance based on your personal circumstances.