Most parents want to help out their children financially at some point in their lives, whether with college or university costs, their first car, their first step on the property ladder or any number of other things. The financial challenges for many are more acute at the moment, due to the coronavirus outbreak and its impact on the economy, job security, income levels and the availability of loans and mortgages, so more young families may be looking to their parents for help.

Whilst the intentions are always good, problems can and do arise, and some may find their way to the courts (we discuss an example below). So, there are various "Dos and Don'ts" to bear in mind when supporting children financially.

Here are our main ones:


  • Be clear about whether you intend to make a gift, loan or some other arrangement. This is so whether you propose to transfer cash, investments, a property, or a family heirloom. Similarly, be clear about whether a gift should have any conditions attached
  • Consider options to protect the assets given away. If the recipient is young, vulnerable, irresponsible or financially immature, or you want to make sure that the assets don’t leave the family, for example if the child divorces or gets into financial difficulties, then it may be preferable for you to lend assets rather than giving them outright
  • Consider using a trust. If you want to reduce the value of your estate for the purposes of inheritance tax you could assign the loan to a trust, the beneficiaries of which are your children and their descendants or you could transfer the assets to a trust rather than outright to the child. If children are young (minors) and the sums are substantial, you'll be more likely to use a discretionary trust, either alone or in tandem with other structures. Otherwise in general the child will be able to get his or her hands on the assets on reaching adulthood. (It is a rare eighteen year old who is ready to manage hundreds of thousands of pounds – for instance – and stories of great damage that may be attributed even to small sums, or just the knowledge that wealth is one day to come, are legion)
  • Record the arrangement precisely. Family relationships can deteriorate and uncertainty can result in bitter litigation. Later in this article, we examine a recent case where a family dispute took place over exactly that
  • For anything but very small sums, take advice and have the documents prepared professionally. If you wish to use a trust, it should always be professionally drafted
  • Be crystal clear about whether you wish to retain any interest in any sums given, or in any property which is purchased using a cash gift. Either of these scenarios will mean that a declaration of trust is required to clearly set out the ownership shares. For a flat or house purchase, any co-ownership needs to be discussed with any mortgage broker to ensure that it is acceptable to any bank or building society lender. If it's a first purchase then a relief which is available from stamp duty land tax for first time buyers may be lost if you have an interest in the property.

Take tax advice at the outset, to cover:

  • Any available exemptions from inheritance tax: while generally gifts tend to be potentially exempt for inheritance tax purposes, meaning that no tax becomes payable provided the donor survives the gift by seven years, you may be able to benefit from inheritance tax exemptions in whole or part. Most likely to be encountered are the £3k annual exemption (which can be carried forward one year), a small gifts exemption for up to £250 per person per tax year, gifts to spouses, gifts in contemplation of marriage and gifts made from surplus income
  • Any impact on your nil rate band of £325k: (this amount reduces the amount of inheritance tax payable on your death – the first £325k is tax free – but can also be used to fund discretionary trusts without triggering an upfront inheritance tax charge, in which case it recharges after seven years to be used again.) There are (potentially costly) traps if you make a mixture of transfers to trusts and gifts to individuals, and complex 'cumulation' rules apply to work out the remaining nil rate band available on death. Each of these mean you should take careful advice about timing
  • Whether the gifted assets will actually be outside your estate for inheritance tax purposes: if so after seven years they will escape charge. They may, however, fall foul of 'gift with reservation of benefit' rules (broadly meaning they are treated for inheritance tax purposes as remaining in the donor's estate) or pre-owned assets rules (which can impose an unexpected annual income tax charge on a deemed benefit to the donor). These rules are surprising in their reach and often complex to apply
  • Who will be taxable on the sums given away? The general rule for inheritance tax is that the donee is primarily liable for any tax bill, a fact which many donors and donees are unaware of. You may also need to consider the rules which apply when you give assets to minor children as any income from those asset will be treated as your income for income tax. As a result gifts made by grandparents are often more tax efficient, as they may allow grandchildren's tax free allowances and lower rates to be used
  • Your own tax position on making the gift: if you give assets, not cash, then generally speaking a capital gains tax charge will arise on the difference between the assets' market value less their base cost (what you paid for them plus anything allowable you’ve spent on them since). You may be able to use losses, reliefs or allowances so that the tax bill is reduced, or to defer the capital gains tax bill when you transfer assets to a discretionary trust. There may also be both inheritance tax and capital gains tax savings if the gifts are funded by you and your spouse jointly (e.g. if a spouse has unused capital losses)
  • If you are tempted to use a trust, how (if at all) will the trustees be taxed: most trusts are subject to inheritance tax charges of up to 6% of the value of the assets held every ten years, and in many cases trustees pay income tax and capital gains tax at higher effective rates than individuals. The choice of which structure is right for you and your family needs careful and bespoke advice
  • Have you kept the correct records and included everything required on your tax returns? The record keeping may be as simple as keeping a list of the gifts you have made, but can be more time consuming if you are claiming that the gifts are within the normal expenditure out of income exemption. If you don't keep sufficient records, your executors may well be faced with additional complexity, and even penalties, following your death
  • Who else may need to file annual self-assessment tax returns or file reports with HMRC: e.g. your children or grandchildren may need to start to have returns filed on their behalf, and in most cases trusts will need to be registered on HMRC's Trusts Register
  • If you take out life insurance, who should own the policy: life insurance is often held by a trust to ensure that the policy proceeds aren’t themselves within the deceased's estate for inheritance tax purposes (partially defeating its purpose)


  • Be vague with family members. Sometimes, especially when the family member is young, they may feel unable seek clarification. Take responsibility for clarity, family dynamics and record keeping
  • Leave arrangements undocumented
  • Leave inequality unaddressed. If what you are proposing is going to mean you treat your children unequally, try to explain the rationale for this during your lifetime. (It is impossible to perfectly explain in writing what are probably good and valid reasons for different treatment, and misunderstandings between siblings when you are no longer alive can run and run.) You may wish to consider whether an equalisation should be made under your will. Drafting to do so doesn’t have to be particularly complex if you instruct a professional
  • Make an investment into a property, perhaps a child's first flat or house, without being clear on whether you are taking a stake, making a loan to the buyer or buyers (other buyers, such as friends or partners/spouses, may be involved) or a gift
  • Finally, don't make a loan and then waive it without considering the tax consequences and taking advice. The value of a loan receivable remains in your estate and if the loan is waived, then it will be treated as a potentially exempt transfer. Care may be required over timing from a tax perspective (as mentioned above), and the waiver should be properly documented.

What does the law say?

When a person transfers an asset to another person without payment, the general rule is that there is only a gift if there is clear evidence of an intention to make one. Otherwise the recipient is deemed to hold the asset on trust for the transferor. Between certain family members, however, this is overridden by a rule called 'the presumption of advancement', under which transfers of property between certain family members are presumed to be gifts. Historically, this presumption only applied when a man transferred property to his fiancée, wife or children. There have been some cases on whether the presumption applies when a mother purchases property for her child, particularly when the mother is the sole parent. So, the law is not always clear in this area and care is needed by those wishing to provide financial support to children and family members to be specific about the nature of the arrangement.

A recent case

Kelly v Kelly[1] shows how important it is that parents are clear about their intentions and document whether financial support is a gift or a loan. Mr Kelly had purchased a property for his son and placed his own home as security for the new mortgage. Mr Kelly and his son later fell out and Mr Kelly brought a claim against his son stating that the purchase of the property was in fact intended to be a loan rather than a gift. Mr Kelly gave inconsistent evidence in court and there was no documentary evidence that the purchase was intended to be treated as a loan. The judge ruled that the presumption of advancement applied and that the purchase of the property was a gift.

The case emphasises the importance of recording written evidence of any intention to make a loan or gift to family members, even though nobody anticipates any fall-outs or disputes.

In summary, do give (generously or otherwise) but always be clear and take advice.

Don’t hesitate to get in touch with your usual Womble Bond Dickinson contact, or one of the team if you'd like to discuss any of the issues raised.


[1] Kelly v Kelly [2020] 3 WLUK 94

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.