A Warning for the Bank of Mum and Dad, what happens if you buy property for your child?

With the rising costs of living, interest rates and inflation, first home buyers are struggling to get onto the property ladder. So, first home buyers are becoming reliant on assistance from one of the UK’s biggest lenders, the Bank of Mum and Dad.

Parents assistance has dramatically increased over the years from a few thousand pounds (which is still incredibly generous) to a record seen at Paul Robinson Solicitors, of £300,000!  As the frequency and amounts from the Bank of Mum and Dad increase, we believe more knowledge and protection should be provided to parents or partners as to protecting their interest.

For the purpose of this article we concentrate on a legal doctrine known as the Presumption of Advancement.

The Presumption of Advancement, is the presumption that if a parent or spouse advance property or money to their child or partner, it is presumed by default to be a gift, unless there is evidence to the contrary.  If there is not such evidence, the recipient is automatically recognised as the owner, without any obligation to make repayment or provide consideration.   

Example 1

Parents John and Mary have decided to assist in the purchase of a house for their daughter, Ella, who is in her final year of university. They want to provide her with a place to live as she begins her career.

John and Mary use £50,000 of their savings to assist in the purchase of the house in Ella’s name.

The house is registered in Ella’s name, and she is listed as the sole owner.

After graduating, Ella moves into the house to start her new job

In this scenario, the presumption of advancement applies because the parents, John and Mary, have transferred £50,000 to the purchase of Ella’s house, without any formal consideration from Ella. The presumption of advancement assumes that parents provided for Ella’s welfare and needs, and in this case, it’s presumed that the £50,000 contribution to the purchase of the house is a gift to Ella.  John and Mary will not be able to ask for repayment of this sum, nor will they have an interest in the property.

Unfortunately, real life is usually not as simple as Example 1. For example, Ella may have a Partner who contributes in the purchase and is named as joint owner of the house with Ella. Ella’s parents still assist in the purchase and provide £50,000. However, Ella and her Partner split up, and need to sell the house. Ella and more importantly her parents, want to reclaim the £50,000 from the sale of the house. However, the Presumption of Advancement assumes the £50,000 as a gift to Ella. This means when the net sale funds are provided to Ella and her Ex Partner, the funds will be split evenly and no consideration will be given to the £50,000 from the parents. The parents would need to prove that they never intended to gift the £50,000 to Ella and that the money advanced was in fact a loan.  

The Presumption of Advancement can be rebutted by the parents with evidence at the time of the purchase that the payment was not a gift. The Parent’s evidence cannot arise after the purchase, while in contrast the child can rely on evidence after the purchase to support the Presumption of Advancement. It is clear the law is favouring the child and trying to defeat parents trying to retract their advancement. At Paul Robinson Solicitors we can assist parents looking to assist their child on getting onto the property ladder but also protect the parents’ interest at the same time.