'Bank of Mum and Dad' wants tax incentives to help children

17 August 2018

Parents aged 55-plus desperately need financial guidance and tax incentives to help kids, according to new research from equity release adviser Key.

More than three quarters (78%) would welcome tax incentives for gifting to their children for major life events, such as university fees, buying their first home or to clear debt.

76% of parents aged 55 and over find tax rules on gifting to their children complicated and worry they’ll make a mistake according to the provider.

Almost a quarter (24%) are anxious that they don’t have the financial knowledge to make the right financial decisions.

With industry estimates showing that more than one in four housing transactions in the UK are financed by the ‘Bank of Mum and Dad’, Key’s research reveals that the over-55s are seeking advice in this area, with two in five (40%) parents saying there should be more financial guidance for them.

‘Generation Rent’ worry about parental help

Key also polled renters between the age of 18 and 54, which revealed that almost half (46%) of those aged 18 to 40 who are renting worry that their parents may not be financially savvy enough to make the right decisions about gifting them money.

More than three-quarters (76%) of those renting want their parents to receive more specific online information and guidance.

Key’s research also shows over a quarter (26%) of parents over 55 want to seek financial advice on how to make financial gifts and almost half (46%) would like financial advice but are worried about the cost.

Dean Mirfin, chief product officer at Key, says: “Collectively, the ‘Bank of Mum and Dad’ 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.

“Older homeowners in the UK own as much as £1 trillion in housing wealth, according to our estimates, and are also likely to have generated significant pension wealth as well as other retirement savings.  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.”

‘If in doubt, seek professional advice’

Mr Mirfin has the following tips for parents considering loaning or gifting to their children and grandchildren:

  • Talk about exactly what you can afford and what is fair. Make sure it is clear from the beginning whether the money you are giving is a gift or a loan.
  • Seek professional advice. Independent financial advice and also legal advice will give you the peace of mind that you are making the right decisions.
  • It’s important for recipients to be transparent from the beginning about who exactly will be receiving and benefiting from the money, particularly if it is going towards a joint house purchase.
  • If you are giving all or part of the money as a loan, draw up a contract outlining repayment terms. Circumstances can change and its useful to have the agreement in writing.
  • Don’t be afraid to say if you are intending for the money to be spent on something in particular, such as helping towards a property purchase. If you are giving the money to help towards a house deposit, consider helping the recipient put it into a Help to Buy Isa or releasing the money only when they’ve found the house they want to buy. 
  • Be aware of tax implications. You can gift any amount of money you like to your children without being taxed immediately but if you pass away within seven years of the transaction there could be tax implications.  
  • Many older people have developed wealth from property, pension assets and other retirement savings including Isas. It’s important, if you are considering a loan or gift to consider which assets are best to access and this is where advice is vital.    
  • It’s vital to carefully consider your own financial future before thinking about gifting or loaning money. Your retirement income, potential cost of care and house refurbishments are the sorts of things to factor in to your decision.  If you are unsure, seek professional advice.

If you are unsure of where to start when looking for financial advice, use the Moneywise find an IFA tool to find out more.


In reply to by anonymous_stub (not verified)

An interesting article and lots of things to consider. Sadly, from personal experience, I feel it is important to point out that this idea of ‘sensible’ financial planning doesn’t always work. I can speak from personal experience as my Uncle has abused the financial power of attorney that he has over my Granmother. In brief, she tried to efficiently help out her sons and she has been completely betrayed by her eldest son, who has refused to improve her care due to obscure reasons, but ultimately, driven by the financial incentives. Very sad, but important for over 55s to be very aware of the trust they are placing in people when they gift so generously.

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