Gifting to your children

Helping your children financially is something every parent feels obliged to do. By gifting early in their adult lives can help them significantly at a time when finances are most difficult. There is no official limit as to how much can be gifted, but care should be exhibited for tax reasons for both the donor & recipient of the cash lump sum.

Practical aspects of gifting

Family Walking on Pier
At London Equity Release we are seeing an increasing number of parents looking to help their offspring to get a better start in life than they had themselves. How many times has it been said ‘you receive an inheritance at the wrong time of life’? Children are regularly telling us it’s no use having to wait until your retirement to receive your inheritance.

Surely the time of life when the financial need is greatest and is the most practical would be when raising a young family or a student at university. However, the most popular time for parental gifting is when your children are looking to get onto the housing ladder. In providing a deposit towards a property purchase, the parents can overcome a major obstacle normally preventing 1st time buyers purchasing their new home.

Gifting using equity release

To be able to present a gift there needs to be the funds in place to do this. Assuming little or no savings are held, then parents over the age of 55 need to consider their options. One of these, after all other alternatives have been eliminated is a release of equity from the parents property. Based on their age(s) and property valuation and now health, parents can take equity release in a format to suit their requirements.

Due to the diversity of equity release plans, parents can select the type of scheme that will meet their objectives. This decision could be dependent on whether there are any other siblings of the beneficiaries in order to balance out the inheritance for the future. Afterall, gifting to one child now, could unbalance the future inheritance of the siblings should a roll-up lifetime mortgage scheme be selected.

Therefore, dependent upon how many children are involved, the attitude towards leaving any inheritance and which equity release scheme is chosen would determine how gifting would affect the final estate value. It is vitally important that any equity release gifting is discussed with your London Equity Release adviser as the wrong selection could have severe implications in the future.

Equity release schemes designed for gifting

Should there a family situation where only one beneficiary exists then equity release gifting matters are relatively straight forward as there is no else to consider upon the death of the last surviving partner. It would then be the sole beneficiaries decision alone as to which equity release scheme to chose. They could decide on whether to opt for: –

  • a roll-up lifetime mortgage scheme which would see their ultimate inheritance erode as the equity release interest is added & compounds
  • an interest only lifetime mortgage option which means they could repay the interest element each month, thus maintaining a level balance & protecting their inheritance.

However, if there is more than one beneficiary, the difficulty lies in who gets what & when? For example if one beneficiary gets a gift now & the others don’t then how does the estate get split in the future as the roll-up equity release scheme eats into the home equity?

One solution to this has been for the beneficiaries to agree to cover the interest payments & keep a level balance. Therefore, if payments are maintained then the loan amount upon final repayment can be deducted from their part of the inheritance they are due.

Reasons for using equity release to gift

At London Equity Release we have processed many equity release cases whereby gifting from parents has been involved. Probably the most common reasons these days is to help them onto the property ladder, maybe as 1st time buyers or to helping them move upmarket. Gifting by equity release can utilise some or all of their inheritance now to get them a foothold onto the property ladder. Effectively this is investing their inheritance wisely at a time when it is needed most & should pay dividends over the longer term.

Other reasons for parental gifting could be to help set the children up in business which is become more commonplace. With a sound business plan, equity release gifting could provide the security children need to begin their own enterprise & become financially secure in the process. During the recent economic downturn, many people have become redundant & have tried to set up their own businesses. This has led to parental support by way of either using savings or as a last resort releasing equity to help children financially if needed.

Some children have been less fortunate & having lost jobs or struggled in general on a financial footing, then a cash boost from their parents could make all the difference to making life more comfortable, The fact is when parental & financial support like this comes along it can provide added confidence knowing the finances are secured & which can then lead to better job prospects moving forward.

In summary

Gifting to the children using equity release can be an emotional journey & one which should always be discussed with EACH child concerned. Care should also be taken when gifting to children who are on means tested benefits which could be affected, dependent upon the amount of equity released for them.

Evidently it can seen that many concerns can arise by using equity release as a cash gift. For this reason please contact your team on 0800 028 3034 to discuss the practical aspects of equity release working in conjunction with making gifts to family members.