We all want to help our children out financially from time to time, but we rarely consider the consequences of making gifts or loans. Is your child married, or do they live with their partner? Do you expect your child may marry or cohabit later? What if that relationship breaks down, would you be happy about the ex-partner walking away with a share of any gift? It is possible to protect your gift if you know the risks. If you gift money to your child before or during their marriage then that asset is not matrimonial property and technically the value is not taken into account on the breakdown of a relationship.

However, in order to qualify for this protection, the asset must remain in the same form throughout the marriage. You can imagine how quickly protection can be lost when you gift cash, shares or a one-bedroom flat, for example. Once you make your gift, it is difficult, if not impossible, to control what is done with it. You may see your child’s inheritance vanish in a divorce settlement, the one-bedroom flat which you helped them to buy having been sold ten years previously to purchase a family home for your child, their spouse and family. There are ways to protect gifts from vanishing.

Pre-nuptial Agreements (or post-nuptial agreements, as they are known if entered into after marriage) are becoming more common. They are no longer exclusively for the rich and famous! Pre-nuptial agreements have many uses, the most common being to ring-fence an asset, and any assets derived from the sale of that asset. Effectively, the family home, purchased using the proceeds of sale of the one-bedroom flat, can be excluded from the calculation of matrimonial property. The pre-nuptial agreement requires to be signed by your child and their partner/spouse. The gifting of property often triggers parents to consider a pre-nuptial agreement on their child’s behalf. Rather than make gifts to children, you may prefer to lend them money.

‘Given the increasingly large deposits now required to buy a property, many parents are lending money to their children to allow them to get on the property ladder’

Given the increasingly large deposits now required to buy a property, many parents are lending money to their children to allow them to get on the property ladder. This may also be a more appropriate option for parents when interest rates are low. If the property is held in your child’s name, your child should qualify for principal private residence relief which usually means that there will be no tax liability when the property is sold.

This contrasts with the situation where the property is held in your name and you will be liable to capital gains tax at 18% on any profit from sale. From a tax point of view, therefore, it is more efficient for your child to own property, but how do you ensure that you get your money back when it is sold? In addition to having a formal agreement drawn up between you both, it is important that your child signs a security in your favour, thus ensuring that any balance after repayment of the mortgage is applied in repaying the amount due to you.