WITH younger generations struggling to get onto the property ladder, the so-called Bank of Mum and Dad — and increasingly the Bank of Grandma and Grandad — has become an important source of financial support.
For many families, helping children or grandchildren buy a home is a natural expression of love and generosity, says Ray Best, estate planning specialist at Wokingham firm Wills, Tax & Trusts Ltd.
Some older relatives are even considering selling their own homes and pooling resources to create a property where several generations can live together.
It can be an attractive solution.
The younger generation gains access to a property they might otherwise be unable to afford, while older relatives benefit from companionship, support and the reassurance of having family nearby.
But there is a question that deserves far more attention: what happens to the financial security of the person providing the money?
A gift may be more permanent than families realise
When a mortgage lender accepts money from a parent or grandparent as a gifted deposit, it will usually require confirmation that the money is a genuine gift rather than a loan.
This commonly means the donor cannot demand repayment or claim an ownership interest in the property.
That may seem like a routine administrative requirement.
Yet the consequences can be profound.
An older person who gives away a substantial proportion of their savings or the proceeds from selling their home may be surrendering money that would otherwise provide independence and security for the rest of their life.
If circumstances change, that generosity could leave them financially vulnerable.
Family relationships may be excellent today, but nobody can predict every future event.
Divorce, bereavement, financial difficulties, illness or a change in living arrangements can all affect what happens to the property.
The time to consider those possibilities is before the money changes hands.
Is there actually an Inheritance Tax saving?
Many people assume that giving money away during their lifetime is automatically good Inheritance Tax planning.
That is not necessarily the case.
The standard Inheritance Tax Nil Rate Band is currently £325,000.
Where a deceased spouse or civil partner did not use their allowance, the surviving spouse’s estate may be entitled to claim the unused percentage, potentially providing a combined standard allowance of £650,000.
Additional relief may also be available through the Residence Nil Rate Band, subject to qualifying conditions.
This means some people are considering substantial lifetime gifts even though their estates may already fall within their available Inheritance Tax allowances.
In those circumstances, giving money away might produce little or no tax saving while significantly reducing the donor’s financial flexibility.
Good estate planning should therefore begin by establishing whether there is an Inheritance Tax problem to solve.
Living in the property can complicate the tax position
The position becomes more complicated where the person making the gift also intends to live in the property purchased with their money.
Tax legislation contains rules designed to prevent people from giving away assets for Inheritance Tax purposes while continuing to enjoy the benefits.
These include the Gift with Reservation of Benefit rules.
There is also a separate regime known as Pre-Owned Assets Tax, which can potentially create an annual Income Tax charge where someone has contributed towards a property they subsequently occupy.
The interaction between these provisions is complex.
An outright cash gift is not automatically treated in the same way as gifting a house and continuing to live in it.
Nevertheless, families should not assume that signing a gifted deposit declaration means there can be no further tax consequences.
In certain circumstances, an election using HMRC Form IHT500 may be relevant, but this requires careful consideration of the individual’s wider estate and the consequences of the election.
What if the marriage breaks down?
Another issue frequently overlooked is what happens when parents or grandparents provide money to help a married couple purchase a home.
The donor may intend the gift to benefit their own child or grandchild rather than both spouses equally.
If the money is simply paid towards a jointly owned property without appropriate documentation, that intention may not be adequately reflected in the ownership arrangements.
It may be possible to ring-fence the contribution through a properly drafted Deed of Gift and Declaration of Trust, identifying the intended recipient and recording the corresponding beneficial interests.
Mortgage lenders may accept such arrangements, subject to their requirements.
However, these documents do not guarantee that the contribution will be excluded from a financial settlement if the couple divorce.
The family court retains wide powers to consider property and financial resources.
This is an area where a relatively modest amount spent on appropriate legal advice before the purchase could prevent considerable uncertainty later.
The care fees question
One of the most serious risks concerns the possibility of needing care in later life.
Someone may be healthy and independent when they make a gift, with every expectation of remaining so for years to come.
Unfortunately, circumstances can change.
Residential care, specialist support or alternative accommodation may eventually become necessary.
If a substantial part of the person’s wealth has already been gifted, their options may be more limited.
There is also a common misconception that money gifted more than seven years earlier is automatically protected from care-fee assessments.
That is incorrect.
The seven-year rule relates to certain Inheritance Tax gifts.
It is not a general exemption from the deprivation-of-assets rules applied in social care financial assessments.
Whether a gift amounts to deliberate deprivation depends on the circumstances, including the donor’s intentions and what could reasonably have been foreseen when the gift was made.
A genuine family gift is not automatically deprivation, but neither is it automatically disregarded.
Protecting the older generation
Where an older person is considering a substantial gift, the planning should not focus exclusively on the needs of the younger generation or the requirements of the mortgage lender.
The donor should be encouraged to consider several fundamental questions.
Will sufficient money remain to meet future living expenses and unexpected needs?
What happens if the shared living arrangement no longer works?
Will the donor have any enforceable right to remain in the property?
And how would the family respond if the property had to be sold?
It is also important to ensure that Wills and Lasting Powers of Attorney are appropriate and up to date.
Above all, the person making the gift should have the opportunity to receive independent advice and make an informed decision about the consequences.
Generosity should not mean giving up security
Helping children and grandchildren is one of the most rewarding things a family can do.
Multigenerational living can also offer genuine benefits, particularly where different generations want to support one another and share the cost of housing.
None of this means such arrangements should be discouraged.
It does mean they should be properly planned.
There may be alternatives to an outright gift, including different ownership or financing arrangements, although these must be acceptable to the mortgage lender and suitable for the family.
And where a gift is genuinely the best option, careful consideration should be given to its tax consequences, the protection of the intended recipient and the donor’s future financial needs.
The most important question is not simply whether you can afford to help your family buy a home.
It is whether you can afford to give that money away permanently.
A little planning before completion may protect both the older and younger generations from difficulties that nobody intended.
Wills Tax & Trusts Ltd provides inheritance tax and succession-planning advice.
This article is for general information and reflects the broad legal position in England and Wales as at October 2026. Individual circumstances require tailored professional advice.
