Bank of family and friends

Many parents, grandparents and other family members provide financial support to help loved ones at important stages of life. Most commonly, this involves helping a child or grandchild buy a home, but financial support can also be given for education, business ventures or other major expenses.

While these arrangements are often made informally, it is sensible to think carefully about how the money should be treated and what might happen if circumstances change in the future.

Whether you are making a gift, providing a loan or contributing towards a property purchase, taking legal advice at an early stage can help avoid misunderstandings and protect your interests.

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How parents can protect their contribution to a property purchase

Family members wanting to protect a financial contribution made towards a property purchase need documentation recording how the property will be owned and what should happen to their money if and when the property is sold or circumstances change.

There are a number of ways in which financial contributions can be documented and protected, depending on the circumstances. These may include:

• A formal loan agreement

• A declaration of trust recording ownership interests in the property

• A charge over the property

• A cohabitation agreement for unmarried couples

• A pre-nuptial or post-nuptial agreement for this planning to or who have married

These documents need to be properly drafted. Depending on the option chosen, steps may also need to be taken with HM Land Registry and HMRC, and the mortgage lender’s consent may also be required. This means speaking to specialists like the family and children team at Mills & Reeve is invaluable. We can help ensure that the documentation reflects your intentions and meets any relevant requirements.

What happens if family money is used to buy a home with a partner?

Parents often contribute towards the purchase of a property that their child ends up sharing with a partner or spouse. While many families are understandably focused on helping their child get onto the property ladder, it is also worth considering what might happen if the relationship breaks down.

Without clear documentation, disputes can arise about whether the money was intended to be a gift or a loan, whether the contribution should be taken into account when the property is sold or divided or even if the money should be repaid to the parent.

Depending on the circumstances, a declaration of trust, cohabitation agreement, pre-nuptial agreement or post-nuptial agreement will help provide greater certainty and avoid these types of disagreements.

Why choose our wealth protection solicitors?

• We’re committed to achieving the outcomes that matter most to you, whether you're helping a loved one financially or receiving help yourself. In our latest client feedback survey, 90% of clients said they would recommend us, reflecting their confidence in our guidance.

• Our specialist team is widely recognised by industry bodies, including The Legal 500 and Chambers and Partners, for expertise in complex family finance matters.

• With offices in major hubs such as London, Birmingham, Manchester and Leeds, we’re always available to meet face to face. Our team will listen to your situation carefully and provide practical, personal advice.