With the stamp duty exemption which came into effect in 2017, the growth of the Help to Buy ISA, and the continuing increase in Help to Buy and shared ownership developments it would be fair to say that we are currently in a market more tailored to first time buyers. That said, there has been no magical formula concocted to assist with the ever rising property prices; getting on that ladder and putting together a 10% deposit is still a huge ask for most. As a result, individuals often have little alternative but to turn to the bank of mum and dad.
With all of this in mind a question we are often asked is whether or not there is a way to protect the monies being gifted. This is a perfectly understandable and reasonable request as, although most parents (if able to do so) are willing to gift the monies to their child, we do appreciate that, more often than not, those monies are intended to help their child and not the partner. This is an important distinction to consider as the most common first time buyer scenario is an unmarried couple. Should the couple split up after purchasing the property, unless an alternative provision is in place, the net proceeds of any sale will be allocated equally between the parties. The result of this is that both parties would be enriched by the gift as opposed to the one whose parents made the gift in the first place.
One option available to first time buyers to combat this risk and protect a gift is a Declaration of Trust. This can be a relatively straight forward document drafted by your solicitor to ensure that before any proceeds are divided a specified sum (i.e. the gift or a relevant percentage) is taken from the net proceeds (after the repayment of any mortgage and estate agent and solicitor fees) and allocated to the individual who has sought to protect it. Any remaining monies can then be split in accordance with the buyers wishes under the Declaration, thus protecting the gift and the intentions of all involved.
Joint ownership is a complicated legal issue and we recommend that you discuss it with your solicitor or a specialist property lawyer here at Adams Harrison. We would advise that you discuss such an option with a financial specialist to ensure that the figures to be agreed upon are fair and reasonable.
Jack Stewart, Solicitor, Adams Harrison